We calculate financial leverage as follows. Financial Leverage =Total Asset/ Equity Financial Leverage = Total Assets/Share...
We calculate financial leverage as follows.
Financial Leverage =Total Asset/ Equity
Financial Leverage = Total Assets/Share Holders Equity
Which one is correct or most acceptable?
Homework Answers
Financial leverage shows the extent to which a company is financed by debt.
Equity shows ownership interest whereas shareholder's equity shows how much the company's operations are financed by equity.
Hence, it is more acceptable to use shareholder's equity in the formula to calculate financial leverage.
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We calculate financial leverage as follows.
Financial Leverage =Total Asset/ Equity
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