Emerson Electric Company (EMR)

Financial leverage ratio

		Sep 30, 2023	Sep 30, 2022	Sep 30, 2021	Sep 30, 2020	Sep 30, 2019
Total assets	US$ in thousands	42,746,000	35,672,000	24,715,000	22,882,000	20,497,000
Total stockholders’ equity	US$ in thousands	20,689,000	10,364,000	9,883,000	8,405,000	8,233,000
Financial leverage ratio		2.07	3.44	2.50	2.72	2.49

September 30, 2023 calculation

Financial leverage ratio = Total assets ÷ Total stockholders’ equity
= $42,746,000K ÷ $20,689,000K
= 2.07

The financial leverage ratio, also known as the debt ratio, measures the extent to which a company relies on debt to finance its assets. A higher financial leverage ratio indicates a higher level of debt relative to equity in the company's capital structure. Conversely, a lower ratio suggests a lower level of financial risk from debt.

Looking at the financial leverage ratio for Emerson Electric Co. over the past five years, we see a fluctuating trend. In 2023, the financial leverage ratio decreased to 2.07 from 3.44 in 2022, signaling a reduction in the company's reliance on debt to finance its operations. This decrease could be a positive sign, indicating potential improvements in the company's financial risk and stability.

However, it is essential to consider the reasons behind this significant change. If the decrease in the financial leverage ratio is due to a reduction in total debt without a detrimental impact on the company's operations or growth prospects, it would be seen as a positive development. Conversely, if it is driven by a decrease in assets or an increase in equity, the implications would need to be assessed further.

Compared to 2021, where the financial leverage ratio was 2.50, the current ratio of 2.07 also suggests a lower level of financial risk. However, further analysis is necessary to understand the factors driving this change in leverage.

In 2020 and 2019, the financial leverage ratio was 2.72 and 2.49, respectively. These ratios demonstrate a relatively stable level of financial leverage during those years, indicating that the company maintained a consistent capital structure during that period.

Overall, the declining trend in the financial leverage ratio from 2022 to 2023 suggests a positive movement towards a potentially more favorable capital structure for Emerson Electric Co. However, it is important to analyze the underlying factors contributing to this change and monitor future developments to assess the company's financial health and risk management.