BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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reflects the firm’s commitment to fixed, financial assets
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has no impact on the earning of the firm
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reflects the amount of debt used in the capital structure of the firm
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primarily affects the left side of the balance sheet
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Detailed explanation-1: -Financial leverage reflects the amount of debt actually used in the capital structure. Financial leverage allows the firm to maximize profits earned by shareholders, as opposed to the profits earned from equity operations. That is, debt is used to gain additional assets.
Detailed explanation-2: -Financial leverage is concerned with financing activities of the firm. It is determined by the capital structure of the firm. It is the firm’s ability to use fixed financial charges to magnify the effects of changes in EBIT on its earnings per share.
Detailed explanation-3: -Understanding Financial Leverage Leverage is the use of debt (borrowed capital) in order to undertake an investment or project. The result is to multiply the potential returns from a project. At the same time, leverage will also multiply the potential downside risk in case the investment does not pan out.
Detailed explanation-4: -Financial leverage is when you borrow money to make an investment that will hopefully lead to greater returns. It’s built on the idea of spending money to make money. Examples of financial leverage can include: Buying a home, investing in a business and buying an investment property.
Detailed explanation-5: -Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing.