Define leverage, Financial Management

Q. Define leverage?

Meaning of Leverage: - The dictionary significance of the term leverage refers to 'an increased means of accomplishing some purpose'. For instance leverage helps us in lifting heavy objects which may not be otherwise possible.

Nevertheless in the area of finance it is used to describe the firm's ability to used fixed cost assets or funds to magnify the returns to its owners.

Leverage can be describe as 'the employment of an assets or fund for which the firms pays a fixed cost or fixed return thus according to him leverage result as a result of the firm employing an assets or source of funds which has a fixed cost or else return. The former perhaps termed as fixed operating cost while the latter may be termed as fixed financial cost. It must be noted that fixed cost or return is the fulcrum of leverage. If a firm isn't required to pay fixed cost or fixed return there will be no leverage.

A high degree of leverage entails that there will be a large change in the profits because of relatively small change in sales and vice- versa. Therefore the higher is the leverage the higher is the risk and higher is the expected return.

Posted Date: 8/5/2013 2:18:42 AM | Location : United States

Related Discussions:- Define leverage, Assignment Help, Ask Question on Define leverage, Get Answer, Expert's Help, Define leverage Discussions

Write discussion on Define leverage
Your posts are moderated
Related Questions
These were first issued during a period of extreme interest rate volatility in the late 1970s. Floating-rate bonds, which are also known as variable-rate bonds or simpl

Six years ago . the singleton company sold a 20 year bond with a 14% annual coupon rate and a 9% call premium. today, singleton called the bonds. the bonds originally were sold at

What is the intuition behind the NPV capital budgeting framework? The NPV framework is a discounted cash flow method. The method compares the present value of all cash inflows


Harrelson Inc. currently has $750,000 in accounts receivable, and its days sales outstanding (DSO) is 55 days. It wants to reduce its DSO to 35 days by pressuring more of its custo

Refer to the Bulldog battery company's cash budget in Table 18-7.  Explain why the company would probably not issue $1 million worth of new common stock in January to avoid all sho

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

When financial assets or bonds are pooled together and offered to the investors for receiving the inflow of funds from these underlying assets, they are termed as asset

Q. Objectives of working capital management? The objectives of working capital management are habitually stated to be profitability and liquidity. These objectives are habitual

Capital Asset Pricing Model (CAPM)   Capital Asset Pricing Model (CAPM) is a model which utilizes the measure of systematic risk, 'B' to price assets. The expected rate of r