What Is Financial Leverage?

The concept of financial leverage: financial leverage refers to the leverage effect of the change of EPS per share due to the existence of debt.

Financial leverage refers to the way companies use liabilities to regulate equity capital gains.

Reasonable use of financial leverage to bring additional benefits to the enterprise equity capital, that is, financial leverage benefits.

As financial leverage is affected by many factors, it is also accompanied by immeasurable financial risks while gaining financial leverage.

Therefore, careful study of financial leverage and analysis of various factors that affect financial leverage, to clarify its role, nature and the impact on corporate equity income are the basic prerequisites for the rational use of financial leverage to serve enterprises.

Financial leverage is a widely applied concept.

In physics, a lever and a fulcrum can be used to lift heavy objects with very little force.

First, the definition of financial leverage is "enterprise setting up".

Second, we think that financial leverage refers to appropriate debt raising in capital raising and the adjustment of capital structure to bring extra benefits to enterprises.

If the debt operation makes the profit per share increase, it is called positive financial leverage. If the profit per share of a company falls, it is usually called a negative financial leverage.

Obviously, in this definition, financial leverage emphasizes the result of debt management.

In addition, some financial scholars believe that financial leverage refers to the significant impact of the fixed debt funds on corporate sovereign capital gains in the total capital of enterprises.