The Role Of Financial Leverage
Reasonable use of financial leverage will give enterprises Equity Capital brings extra benefits, but at the same time, it brings financial risks to enterprises.
(1) role
The role of financial leverage is to raise corporate owners by raising debt and preferred stock.
Profit
The function is based on the contrast relationship between the investment profit of the enterprise and the interest rate of the debt.
1. investment profit rate is greater than debt interest rate.
At this point, the profits generated by enterprises, the profits generated by debt funds used by enterprises (i.e. pre tax profit), have some surplus except debt interest, which is owned by the owners of enterprises.
2. investment profit margin is less than debt interest rate.
The interests created by the debt funds that the enterprises are adapting to are insufficient to pay interest on debt, and some enterprises that are not paid will need to compensate for the profits created by the use of equity funds.
This will reduce the rate of return on the use of equity funds.
It can be seen that when liabilities are in a large proportion of all funds, they are
payment
When the interest is large, the owner will get more extra income. If the profit margin of the investment is less than the interest rate of the debt, the owner will bear more additional loss.
Usually, the effect of interest cost on extra income and extra loss becomes the function of financial leverage.
(two) consequences of financial leverage
Different financial leverage will play different roles under different conditions, resulting in different consequences.
1. the profit margin of investment is greater than that of debt. Financial leverage will play a positive role, and the result is that the owners will get more extra benefits. This additional profit from financial leverage is financial leverage.
2. the profit margin of investment is less than that of debt. Financial leverage will have a negative effect, which will result in greater additional losses for the owners. These additional losses constitute financial risks and even bankruptcy. This uncertainty is the financial risk that enterprises take on liabilities.
- Related reading
- Fashion blog | The Gas Bandage Shoes And Daddy Shoes Are Embarrassed To Wear Out! Because The 4 Pairs Of Shoes Are Hotter This Autumn.
- Star wardrobe | Ma Yili's New Style Is Gentle And Graceful, And His Temperament Is Better After He Is Single.
- Star wardrobe | Hailu Qin's White Shirt Matches The Chinese Skirt Elegant Atmosphere, Looks At The Figure 20 At Most.
- Fashion blog | Are British Men Dressed In Pink Pants To Be Scolded? Dare Not Wear, Is Not Enough Men.
- Fashion blog | 6 Kinds Of Daily Shorts For Shorts Make You Feel Comfortable And Cool In Summer.
- Fashion blog | It Doesn't Cost A Lot Of Money. The Key Points Of The Autumn Light Luxury Match Are To Read Aloud For You At The 5 Price Lists.
- Fashion blog | Smart Women Would Like To Dress Up As "Polished Boards" Because They Wear More Clothes Than Others.
- Fashion blog | Do You Understand This Year's Thin Trousers? Let's Take A Look At The Bottom And Help You Remove The Fat Label.
- Star wardrobe | Ni Hongjie Was So Fashionable. Vintage Bobo Takes Pictures Of Fashion, Beauty And Beauty.
- Star wardrobe | Guli Nazha's 1900 "Sleeps" Are Being Caught By Shoes.
- Domestic Clothing Brands Begin To Explore Overseas Online Shopping Market
- What Is Financial Leverage?
- Hidden Rules Of Spanish Chinese Clothing Industry: Digging Traps And Digging Traps
- The Display Of Clothing Shops Is Becoming Popular &Nbsp; Experts Are Fighting For You.
- Financial Terms: Financial Profit
- Jiang Fangzhou: Girls Should Dress Well At The Most Beautiful Age.
- Financial Process
- Cotton Prices Staged A "Crazy" &Nbsp In History, And Profits Fell From Export Service Companies.
- How Do You Open The Clothing Store Next To The Mall?
- What Is Derivative Financial Asset?