Leverages, Financial Management

Assignment Help:

Leverages

'Leverages' are of prime importance in the analysis of a companies' risk. They give a good picture of the business, financial and the overall risk of a company's operations. Following three leverages are the most important in this regard:

 

Operating Leverage (OL) = Contribution / EBIT

  • It is a measure of the business risk.

 

Financial Leverage (FL) = EBIT / PBT

  • It is a measure of the financial risk.

 

Combined Leverage = OL * FL = Contribution / PBT

  • It is a measure of the overall risk.

 

 

 


Related Discussions:- Leverages

How to find value of zero-coupon bond?, Illustration  Find ...

Illustration  Find out the value of zero-coupon bond when maturity value is Rs.1,00,000, discounting rate is 12%, and the period is 25.  Then,

Define capital rationing, What is capital rationing?  Should a firm practic...

What is capital rationing?  Should a firm practice capital rationing?  Why? The term Capital rationing is the practice of setting dollar limits on what will be invested in new ca

Concept of yield spreads, The Central Bank is an authority responsible for ...

The Central Bank is an authority responsible for monetary policy of its country. It regulates money supply and credit, issues currency, and manages exchange rate.

Dual-indexed floaters, In dual indexed floaters the coupon rate is a ...

In dual indexed floaters the coupon rate is a fixed rate plus the difference between two reference rates. Purchasers of these securities typically make an assumpt

Discounting the expected cash flows in valuation process, After deter...

After determining the expected cash flows and appropriate interest rate, the last step in the valuation process is to find the total PV of all cash flows. The PV

Laspeyres method, Laspeyres Method Laspeyres method uses the quantities...

Laspeyres Method Laspeyres method uses the quantities consumed during the base period in computing the index number. This method is also the most commonly used method which inc

Event-driven strategies-investment strategy of hedge funds, Event-Driven St...

Event-Driven Strategies : These strategies are solely focus on events of corporate life cycle for investing. They involve significant opportunities created by corporate events such

Role of interest groups in public policy making, Question 1: Explain cl...

Question 1: Explain clearly why "Public Policy Making constitutes a major part of the work of the Government. Question 2: Consider the role of interest groups in public

Constructing index numbers - weighted aggregates index, Weighted Aggregates...

Weighted Aggregates Index   In a weighted aggregates index, weights are assigned according to their significance and consequently the weighted index improves the accuracy of the

Unity of command, Unity of Command Unity of command is the principle in...

Unity of Command Unity of command is the principle in which each subordinate should be responsible to only one manager.

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