Definition of financial leverage, Financial Management

Assignment Help:

Q. Definition of financial leverage?

One of the goals of planning an appropriate capital structure is to maximize the return on equity shareholders fund or else maximize the earning per share. a number of authorities have used the term 'financial leverage' in the context that it defines the relationship between EBIT as well as EPS. As-per to the Gitman 'financial leverage' is the ability of a firm to use fixed financial charges to magnify the effects of change in EBIT on the firm's earning per share. The financial leverage so indicate the percentage change in earning per share in relation to a percentage change in EBIT. The degree of financial leverage is able to be written as follows:

Degree of financial leverage   =    Percentage change in EPS / (DFL) Percentage change in EBIT


Related Discussions:- Definition of financial leverage

Evaluate alternative hedging strategies, Peak Inc. needs to order Canadian ...

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

Common-size statement value, A firm has sales of $6,500, net income of $500...

A firm has sales of $6,500, net income of $500, total assets of $12,000, and total equity of $700. Interest expense is $1000. What will be the common-size statement value of the in

Explain in-quote-driven according to trade intermediation, Explain about th...

Explain about the in-quote-driven according to trade intermediation. In quote-driven dealer markets, a market-maker or dealer is onto one side of each trade. (Remember that dea

Define analysis of proforma reveal positive & negative trend, What action(s...

What action(s) should be take place if analysis of pro forma financial statements reveals positive trends?  Negative trends? While analyzing the pro forma statements, managers fre

Correlation among stock index returns, Correlation Among Stock Index Return...

Correlation Among Stock Index Returns Correlation among stock Index Returns can be defined as the extent to which the values of different types of investments move in tandem wi

Balance sheet and income statement, Do these two problems in Excel. Balance...

Do these two problems in Excel. Balance Sheet and Income Statement.  The following information is used for the first two problems.  Problem 1 is the income statement and problem 2

Describe the general pattern of cash flows, Describe the general pattern of...

Describe the general pattern of cash flows from a bond with a positive coupon rate. Cash flows from a bond along with a positive coupon rate contain periodic interest payments an

For capital budgeting decision which cost is relevant, For capital budgetin...

For capital budgeting decision which cost is relevant For capital budgeting decision, composite cost of capital is comparatively more relevant albeit the firm may finance one p

Assignment, what are the features of branch accounting

what are the features of branch accounting

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