Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Q. What do you mean by Financial Leverage?
Financial Leverage: - The financial leverage perhaps defined as the tendency of the residual net profit to vary disproportionately with operating profit. It point outs the change that take place in the taxable income as a result of change in the operating income. It implies the existence of fixed interest/ fixed dividend bearing securities in the total capital structure of the company. Therefore the use of fixed interest/ dividend bearing securities such as debt & capital preference along with the owner's equity in the total owner capital structure of the company is described as financial leverage. Where in capital formation of the company the fixed interest /dividend bearing securities are greater as compared to the equity capital the leverage is said to be larger. In the repeal case the leverage will be said to be smaller.
Favourable as well as Unfavourable financial leverage: - Financial leverage possibly favourable or unfavourable upon whether the earning made by the use of fixed interest or dividend - bearing securities surpass the or not explicit the fixed cost the firm has to pay for the employment of such funds. The leverage will be determined to be favourable so long the firm earns more on assets purchased with the funds than the fixed cost of there use unfavourable or negative leverage occurs when the firm doesn't earns as much as the fund cost.
Financial leverage is as well termed as 'trading on equity'. The corporation resorts to trading on equity with the objective of giving the equity shareholders higher rate of return than the general rate of earning on capital employed in the company to compensate them for the risk that they have to bear. For instance - If a company borrows Rs. 100 @ 10% P.a and earns a return for 12% the balance 4% p.a. Subsequent to payment of interest belongs to the shareholders and therefore they can be paid a higher rate of return than the general rate of earning of company. However in case company could earn a return of only 6% on Rs 100 employed by it the equity shareholders loss will be Rs. 2 p.a Therefore the financial leverage is a double - edged sword. It has the potentially of rising the return to equity shareholders.
Formulae: - Financial leverage = Earning before tax and Interest / Profit before tax but after interest
State the term- adequate working capital If a firm doesn't have adequate working capital, that is, it doesn't invest sufficient funds in current assets, it can become illiquid
a) Definitions of EST and LFT needed in order to explain the differentiation between the terms. The EST of each activity will depend on the LFT of all preceding activities. b) S
Financial management is that division of managerial process which is concerned with the planning and controlling of firm's financial resources. It is concerned with the procurement
a) Social marketing is the use of normal marketing methods to achieve the benefits of social change, such as informing the public about the harm of under-age drinking, rather than
Now that we have seen how default-free theoretical rate can be extrapolated from the treasury yield curve, let us see how some other additional information, like forwar
LIMITATIONS OF BUDGETARY CONTROL 1. It involves predicting the future which is not certain. 2. Market is continuously and dynamically evolving. Hence budgets based on past
I need a report on the topic Cash Management Control. Can you please assist me for Cash Management Control report for about 2500 words?
Which is lower for a given company: the cost of debt or the cost of equity? Explain. Ignore taxes in your answer. The cost of debt is all the time less than the cost of equi
McGovern Company is comparing two disimilar capital structures - an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the Company would have 700,000 shares of s
(a) A usual cash flow diagram will incorporate the following. If you are short the CDO and then you receive a fixed amount at the initial point t o . After that you make paymen
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!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd