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
type of assets for ppt from t.y.bom com student in commerce department in financial management
Explain in detail about the Cost of Capital Every type of capital used by the firm (preference shares, debt and equity) must be incorporated into the cost of capital, with rela
You must analyze the operating performance of your company. You will use ratio analysis and primarily using Liquidity, Profitability and Working Capital ratios. You will use a g
Five Cs of Obtaining Credit The five crucial parts lenders examine previously issuing credit include: 1. Character. This is a calculation of the borrower's integrit
Advantages of Floating rate notes: We know that the coupon rate is fixed for fixed rate bonds and that throughout its tenure the investor receives coupons at a predetermined in
State the objectives of Corporate financial Corporate financial objectives could be to: 1. Provide the link between business and the other entities in environmentand 2.
Rating Elements A rating agency earns its reputation by assessing the client's operational performance, managerial competence, management and organiza
Definition The term "Hedge Fund" is a colloquialism derived from the expression "to Hedge one's bets", which means to limit the possibility of loss on a speculation by betting
Corporation - Form of doing business pursuant to a charter granted by a state or federal government. Corporations mainly are characterized by the issuance of freely transferable CA
Question 1 Cost of capital is the minimum rate of return required by a firm on its investment in order to provide the rate of return by its suppliers of capital. Explain the co
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