Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Q. What do you mean by Financial Leverage?
Financial Leverage: - The financial leverage perhaps defined as the tendency of the residual net profit to vary disproportionately with operating profit. It point outs the change that take place in the taxable income as a result of change in the operating income. It implies the existence of fixed interest/ fixed dividend bearing securities in the total capital structure of the company. Therefore the use of fixed interest/ dividend bearing securities such as debt & capital preference along with the owner's equity in the total owner capital structure of the company is described as financial leverage. Where in capital formation of the company the fixed interest /dividend bearing securities are greater as compared to the equity capital the leverage is said to be larger. In the repeal case the leverage will be said to be smaller.
Favourable as well as Unfavourable financial leverage: - Financial leverage possibly favourable or unfavourable upon whether the earning made by the use of fixed interest or dividend - bearing securities surpass the or not explicit the fixed cost the firm has to pay for the employment of such funds. The leverage will be determined to be favourable so long the firm earns more on assets purchased with the funds than the fixed cost of there use unfavourable or negative leverage occurs when the firm doesn't earns as much as the fund cost.
Financial leverage is as well termed as 'trading on equity'. The corporation resorts to trading on equity with the objective of giving the equity shareholders higher rate of return than the general rate of earning on capital employed in the company to compensate them for the risk that they have to bear. For instance - If a company borrows Rs. 100 @ 10% P.a and earns a return for 12% the balance 4% p.a. Subsequent to payment of interest belongs to the shareholders and therefore they can be paid a higher rate of return than the general rate of earning of company. However in case company could earn a return of only 6% on Rs 100 employed by it the equity shareholders loss will be Rs. 2 p.a Therefore the financial leverage is a double - edged sword. It has the potentially of rising the return to equity shareholders.
Formulae: - Financial leverage = Earning before tax and Interest / Profit before tax but after interest
Q. Compute the weighted average cost of capital? A company's subsequent to tax specific cost of capital are as follows: Cost of debt
Q. Explain about Death Benefit? Death Benefit - Amounts received under a life insurance contract and paid by reason of death of the insured. (Even though most death benefits ar
What are the advantages and the disadvantages of a new stock issue? A new stock issue increases funds and reduces the riskiness of the firm. It as well tends to send a negative
Lincoln Park Zoo in Chicago is considering a renovation that will improve some physical facilities at a cost of $1,800,000. Addition of new species will cost another $310,000. Addi
Explain the challenges before an E-business management
MONOPOLY Several governments consider it necessary to prevent or control monopolies. A untainted monopoly exists when one organisation controls the production or supply of a go
three years ago, SSSG Ltd. issued 10 years $1000 bonds with a 7% coupon rate paid semi-annually, at par value. the market currently requires a 9% yield. what was the price of bond
Q. Importance of Inventory Management 1) Inventory helps in smooth and efficient running of business. 2) Inventory provide service to the customers immediately or at a short
Definition of 'Beta' A measure of the volatility or systematic risk of a security or a portfolio in difference to the market as a whole. Beta is needed in the capital asset pri
functions of stock market in usa
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!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd