Show danger of high financial gearing, Financial Accounting

Assignment Help:

Q. Show danger of high financial gearing?

A additional danger of high financial gearing is that a company may move into a loss-making position as a result of high interest payments. It will thus become difficult to raise additional finance, whether debt or equity and the company may require undertaking a capital reconstruction.

It is probable that a business with high operational gearing will have low financial gearing and a business with high financial gearing will have low operational gearing. This is for the reason that managers will be concerned to avoid excessive levels of total risk that is the sum of business risk and financial risk. A business with a grouping of high operational gearing and high financial gearing clearly runs an increased risk of experiencing liquidity problems making losses and becoming insolvent.


Related Discussions:- Show danger of high financial gearing

State the types of business organizations, State the types of business orga...

State the types of business organizations There are numerous types of business organizations: Service business-doctors, lawyers, barber shop etc. Merchandising busin

Inventory management, Most firms build and keep inventories in the course o...

Most firms build and keep inventories in the course of doing business. Manufacturing firms hold raw material, finished goods and spares and work in process in inventories. Financia

What is its wacc, You were hired as a consultant to Giambono Company, whose...

You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost

Concept of accounting, what is the implication of applying accounting conce...

what is the implication of applying accounting concepts wrongly

Transactions affecting retained earnings, shown below in T-account format a...

shown below in T-account format are the changes affecting the retained earnings of Brenner-Jude Corporation during 2011. At January 1,2011, the corporation had outstanding 105 mill

Prepare a post-closing trial balance, As a recently hired accountant for a ...

As a recently hired accountant for a small business, Bearing, Inc., you are provided with last year's balance sheet, income statement, and post-closing trial balance to familiarize

Market segmentation analysis, Task This task is designed to further dev...

Task This task is designed to further develop your critical analysis and research skills related to the tourism or hospitality enterprise you selected for Assignment 1. You are

What is basic defination of fca, Q. What is basic defination of FCA? Ye...

Q. What is basic defination of FCA? Yes. FCA is a method of accounting for all financial costs of funds used or committed for municipal solid waste (MSW) services. FCA suggests

Discount rate to the estimated npv of the investment, Q. Discount rate to t...

Q. Discount rate to the estimated NPV of the investment? There is no necessity to round the solution up to the nearest whole percentage. NPV approximate may be made using the e

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