Define leverage, Financial Management

Assignment Help:

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.


Related Discussions:- Define leverage

Sole proprietorship, Sole Proprietorship This business form is the lega...

Sole Proprietorship This business form is the legal default form for any person who makes no effort to organize the business otherwise but does business in the United States. T

Internal rate of return, Internal Rate of Retur n The discount ...

Internal Rate of Retur n The discount rate at which the net current value (the value of all future cash flows, in excess of the real investment, expressed  in today's d

Who owns a credit union? explain, Who owns a credit union? Explain. Cr...

Who owns a credit union? Explain. Credit unions are owned by their members.  When credit union members place money in their credit union, they aren't technically "depositing"

Currency swap, How exchange of principal and interest in one currency? E...

How exchange of principal and interest in one currency? Expalin

Out of cash, Out of Cash Calculated by taking organization cash on hand...

Out of Cash Calculated by taking organization cash on hand divided by its burn rate, yielding the time period that the organization will have enough cash to cover what it wants

Abnormal earnings valuation model, A technique for knowing a company's wort...

A technique for knowing a company's worth that is based on earnings and book value. It is also known as the residual income model, it seems at whether management's decisions cause

Enumerate the securities and investment analysis, Enumerate the Securities ...

Enumerate the Securities and Investment Analysis Purchase of bonds, stocks and othersecurities involve analysis and techniques which are highly specialized. An investorshoul

Monte-carlo simulation model and option adjusted spread, We have seen...

We have seen the valuation of bonds with embedded option using binomial model. This method can be used when cash flows do not depend on how interest rates evolve.

Strategic management, Develop and implement strategic plan using bounce fit...

Develop and implement strategic plan using bounce fitness as case study

Accrued interest, When an investor buys a bond in between coupon paym...

When an investor buys a bond in between coupon payments, he is supposed to compensate the seller with the coupon interest earned on the bond from the last coupon

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

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!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd