financial leverage Free Essay, Term Paper and Book Report
Financial leverage is the use of debt to magnify the rate of return on shareholders' equity. Relying more on debt than equity to raise capital for business will have a higher debt-equity ratio. As the ratio increases, the financial leverage of the business also increases.
Return on shareholder equity is often called return on equity. It is the percentage change in income divided by the value of equity at the beginning of the period.
Your debt-equity ratio is likely to change as your company grows. If you manage a profitable business and retain most of your earnings, the debt-equity ratio drops over time.
1. The higher the income on equity, the greater the return on equity.
2. The lower the shareholder equity, the higher the return on equity for a given amount of income.
3. The higher a firm's financial leverage, the riskier the firm's operations are considered to be. The most typical system of determining an acceptable level of financial leverage is by comparing operations to others firms in the same industry.
Degree Of Financial Leverage (DFL) :
A leverage rati......
Word Count: 890
Page Count: 3.5 (250 words a page / double spaced)
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