Explain which factors determine operative leverage and financial leverage.
In financial analysis:
Leverage means the influence of one
financial variable over some other related financial variable.
These financial variables can be sales, contribution, variable or fixed costs, Earnings Before Interest and Tax, Earning per share.
operating leverage= Contribution/EBIT
financial leverage= EBIT/EBT
Contribution=sales- variable cost.
EBIT= earnings before interest and tax.
EBT= earnings before tax.
Factors which affect operating leverage are operation fixed
costs.
For example: Rent, Manager salary, depreciation etc.
Factors which affect financial leverage are financial fixed
costs.
For example: interest on bank loans, preference dividend, interest
on debt etc.
Explain which factors determine operative leverage and financial leverage.
What factors would cause a difference in the use of financial leverage for a utility company and an automobile company? Also, please discuss the limitations of financial leverage.
What is financial Leverage; explain with an example how leverage creates larger returns in both directions.
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?
Explain how debt financing (financial leverage) could improve the value of the firm. Explain why too much financial leverage might hurt the value of the firm.
Give examples on the following factors affecting capital structure: *Financial leverage *Risk *Growth and stability *Retaining Control * Cost of capital *Cash flows *Flexibility *purpose of finance *asset structure
2. What is operating leverage? How, if at all, is it similar to financial leverage? If a firm has high operating leverage would you expect it to have high or low financial leverage? Explain your reasoning. Please also add to your answer an example of where an HR manager may use operating leverage to his or her advantage.
Explain how do financial analysts use ratios to analyze a firm’s leverage?
Which of the following statements is FALSE about financial distress? A) Financial distress increases with leverage. B) Financial distress is at its minimum when optimal leverage is achieved. C) Fire sale means that financially distressed firms sell their assets at a large discount. D) Financial distress is a type of costs of debt.
what is meant by financial leverage? How does financial leverage influence the level of financial risk?
32.Use of Financial Leverage by Private Equity Funds Explain why private equity funds use a very high degree of financial leverage and how this affects their risk and potential return on investment.