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
Illustrate the in brokered markets according to trade intermediation. In brokered markets: In brokered markets, brokers execute an active search function to match buyers and
What are the pros and cons of commercial paper relative to bank loans for a company seeking short-term financing? Commercial paper is generally a cheaper source of short-term f
In multiple correlation equations we are often interested in finding out how much of the variation in the dependent variable is explained by one independent variable if all the oth
Swing Traders Swing trading is more or less similar to day trading except that swing traders will normally have a longer holding period during a working day. Swing traders also
Q. Show the Signs of Overtrading? There are a number of usually recognised signs that a company may be overtrading. These are considered mutually with relevant financial data f
Shareholders versus Managers A Limited Liability company is possessed by the shareholders though in most of the cases is managed by a board of directors selected by the shareho
Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.
Q. Explain Short- and long-term financing mix? In forming a fresh business there is no business history to present to the bank thus there is additional uncertainty which will n
Fixed Costs The costs a rigid incurs doing business that do not change in relation to production. Rent, for example, is a fixed cost because it remains constant whether product
Suppose you are a euro-based investor who simply sold Microsoft shares which you had bought six months ago. You had invested 10,000 euros to buy Microsoft shares for $120 each shar
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