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

Portfolio diversification, Portfolio Diversification The objectives of ...

Portfolio Diversification The objectives of diversification are to: Reduce the variability of the fund's total return; Reduce the exposure to any single component of t

Operating cycle, Explain the operating cycle of a vegetable growing busines...

Explain the operating cycle of a vegetable growing business

Illustrate report on net present value, Q. Illustrate report on net present...

Q. Illustrate report on net present value? The NPV of a project is a positive $56000. This point to that using our cost of capital 10% as our discount rate the project is we

TRIAL BALANCE, #The following items are found in the The following items ar...

#The following items are found in the The following items are found in the trial balance of M/s Sharada Enterprise on 31st December, 2000.

State the factors of tests of controls, State the factors of Tests of contr...

State the factors of Tests of controls Tests of controls may include · Enquiries and observations corroborating internal control functions. Inspection of docu

Pension fund management, Pension fund management Pension fund systems o...

Pension fund management Pension fund systems ought to be carefully designed and supervised to make sure that their purposes are met, the economic consequences are appropriate a

Process of ambiguity - profit maximisation criterion, Process of Ambiguity ...

Process of Ambiguity - profit maximisation criterion One practical difficulty with profit maximisation criterion for financial decision making is that term-profit is a vagu

What was the second ground of criticism, What was the Second ground of crit...

What was the Second ground of criticism of traditional treatment Second ground of criticism of the traditional treatment was that focus was on financing problems of corporate e

Discuss risk from perspective of capital asset pricing model, Discuss risk ...

Discuss risk from the perspective of the Capital Asset Pricing Model (CAPM). The Capital Asset Pricing Model or CAPM be able to be used to compute the appropriate required rate

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