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
What is rectification of errors? List and explain the stages where the errors are deducted for rectification.
What are the Objectives or goals of Financial Management? Objectives of Financial Management: - It is the responsibility of the top management to lay down the objectives or goa
Why would it be useful to examine a country’s balance of payments data? Answer: It would be helpful to observe a country’s BOP for at least two reasons. First, BOP offers detail
This question tested the core area of specifically gradually consolidation and acquisitions (control to control). The principle of calculation of goodwill at the date where control
What was the first argument against traditional approach The first argument against traditional approach was based on its emphasis on issues relating to procurement of funds by
Explain in brief about Financial management These tools help the manager to figure out which sources offer the lowest cost offunds and which activities will provide the greates
discuss the applicability of an operation cycle in a vegetation business
Central Bank : The Central Bank is the nation's principal monetary authority responsible for the monetary policy of the country. It regulates money supply and credit, issues cur
a. The primary financial objective of a company is the maximization of the wealth of shareholders ...per corporate finance theory. Though, this objective is usually replaced by
Problem: 1.1 Clearly explain the costs and benefits of being a small and remote island or a ministate economy. 1.2 Over the years, the role of government has been defined al
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: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd