Define leverage, Financial Management

Assignment Help:

Q. Define leverage?

Meaning of Leverage: - The dictionary significance of the term leverage refers to 'an increased means of accomplishing some purpose'. For instance leverage helps us in lifting heavy objects which may not be otherwise possible.

Nevertheless in the area of finance it is used to describe the firm's ability to used fixed cost assets or funds to magnify the returns to its owners.

Leverage can be describe as 'the employment of an assets or fund for which the firms pays a fixed cost or fixed return thus according to him leverage result as a result of the firm employing an assets or source of funds which has a fixed cost or else return. The former perhaps termed as fixed operating cost while the latter may be termed as fixed financial cost. It must be noted that fixed cost or return is the fulcrum of leverage. If a firm isn't required to pay fixed cost or fixed return there will be no leverage.

A high degree of leverage entails that there will be a large change in the profits because of relatively small change in sales and vice- versa. Therefore the higher is the leverage the higher is the risk and higher is the expected return.


Related Discussions:- Define leverage

Convertible and non-convertible bonds, Bonds can also be classified i...

Bonds can also be classified into convertible and non-convertible depending upon whether they carry a conversion feature or not. Convertible bonds are the ones which ca

Define accumulated depreciation, What is accumulated depreciation? Depr...

What is accumulated depreciation? Depreciation is the allocation of an initial cost over time of asset. Whereas the term accumulated depreciation is the total of all the deprec

BUS 430 Finance Seminar, Image Storage Corporation has 1,000,000 shares out...

Image Storage Corporation has 1,000,000 shares outstanding. It wishes to issue 500,000 new shares using a (North American) rights issue. If the current stock price is $50 and the s

#titleEvaluate alternative hedging strategies, Peak Inc. needs to order Can...

Peak Inc. needs to order Canadian raw materials to use in its production process. The Canadian exporter typically invoices Peak in Canadian dollars. Assume that the current exchang

Treasury bills in international markets, Treasury Bills in International Ma...

Treasury Bills in International Markets A brief discussion on treasury bills in international markets is given below: Primary Market T-bills are important money market

Ledge ac count, Ask question #Minimum 100 words accepted

Ask question #Minimum 100 words accepted

base-case NPV, Ask question #MiniA project under consideration costs $750,...

Ask question #MiniA project under consideration costs $750,000, has a five-year life, and has no salvage value. Depreciation is straight-line to zero. The required return is 17 per

Graphic presentation of organisation of finance function, Q. Graphic Presen...

Q. Graphic Presentation of Organisation of Finance Function? Graphic Presentation of Organisation of Finance Function: - The following chart describes the organization of the f

Problem in the determine of cost of the capital, Q. Problem in the determin...

Q. Problem in the determine of cost of the capital? Conceptual controversies regarding the relationship between the cost of the capital and the capital structure: different the

Explain the term present value of the firm''s operations, Explain the term ...

Explain the term "present value of the firm's operations" (also known as Enterprise Value ).  What does this number represent? The present value of the company's free cash flo

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd