Question
Define financial leverage and explain their merits and demerits.
Answer :
Word Count : 764
_____ _________ _________ __________ ___.
_______ _________ ___ _____ ___ ________ ____ ______ ____ __________ _____ __________.
______ _______ __________ ___ _____ ______ _______ _________ _________ _________ ___.
______ __________ __________ ________ _______ ______ ______ ____.
_________ _________ ______ ___ __________ ____.
________ _________ _______ ________ _____ _________ _____ _______ ________.
________ ________ ____ _________ ___ _________ _________ ______ ___ _____ ______.
_____ _______ ____ _____ __________ __________ ________ ____.
______ __________ _________ ________ ________ ________ _________.
________ _______ __________ ________ ________ _______ ______ _______ ___ ________.
_________ ___ ______ ________ ____ _____ ________ _________ __________ ___.
________ __________ ___ __________ _________ _________.
______ ___ _______ ____ _______ ___ ___ ______ ______.
______ _______ _____ __________ ________.
____ ____ __________ _____ _________.
_________ ________ _________ ______ _______ ___ ___.
___ ______ _________ ______ ______ ________ _____ _____.
____ __________ _______ _____ _________ __________ ______ ______ _______.
___ _________ ___ __________ _________ ___ __________ _______.
_____ ______ _______ ___ ________ ___ ________ _______ ___ ________ _____.
___ ______ ___ _______ ________ ______ ____ _________.
_________ ____ _______ ________ ______ _____ ________.
____ _____ _________ _____ ___ _________ ___ _______ _____ ____ _______ _______.
_______ _________ ____ ________ _____ _____ ____ ___ __________ ______ _____ _____.
__________ ___ ______ __________ ______ _______ _______.
______ ____ ____ __________ _______ ____ _____ ________ ____ _____.
_____ __________ __________ ___ ___ _____ ______ ___.
____ ___ __________ _______ ____ __________ _________ ________ ____ __________ __________.
_______ _________ ____ ___ _________ ________ _______ _______ __________.
_____ ______ __________ ____ _________ __________ ______ ___ _____.
______ _____ __________ _______ _______ ____ ____.
_______ ________ ___ ________ ___ __________.
____ ______ _____ ___ _______ ___ ______ __________ _______ ___.
____ __________ __________ ____ ______ ____ ______ _______ ______ __________ _________ ____.
________ __________ _____ __________ ______ _____ ___.
______ ________ ____ ______ _________ _______ _____ ____ ____ __________ _____.
_______ __________ _______ _______ ______ ______.
_______ _____ _______ __________ _________ ____.
___ ______ __________ __________ ___ ___.
___ _________ ______ ____ ___ ________ _____ _____ _________ ______ __________.
________ __________ ____ __________ _____ _____ _________ _______.
______ ___ ______ __________ ____.
______ _________ _____ ______ ___ _______ ________.
__________ _____ __________ ________ _____ ________ _____ ________.
__________ _______ _______ ___ _____ _______ _______ _________ _________ __________.
_____ ____ _________ _____ ___ ___ __________ __________ ______.
__________ ______ ________ ________ _______ _________ ___ _____.
________ ________ ___ _____ _______ __________ ________.
_________ ____ _______ __________ __________ ______ __________ _____.
______ ______ __________ _____ __________ ________ _______ ________ ___ ____ _________.
______ ___ ________ ______ __________.
________ _______ ____ _____ ___.
____ __________ ____ _________ ________ ____ ____ _____ ___ _________ ______ ______.
_________ _________ ____ _____ _________ ____ ______ ___ ______ ________ _____ _________.
____ _______ __________ _____ __________.
________ __________ __________ ___ ____ ____ ___.
________ ________ ____ ______ ____ __________ _________.
___ ____ ________ _______ _________ _______ ___ ________ _____ ___ ________ ________.
_______ ______ ______ ________ _________ ______ ___.
____ _________ ________ ________ ___ ____ ____ ________ ____ _____ _______.
_________ _________ ________ ________ __________ ________ __________ _____ ______ __________ __________ ______.
____ ___ _____ _________ ________ _________ _________ ___ ___ ____.
_________ _____ _______ __________ _________ ______ _____.
__________ _____ _____ ___ _______ ____.
___ ______ ________ ______ ____ _________ ______ _______ _______ ______ ______ ____.
___ __________ _______ _______ _____ _______ ___ __________ ____.
____ ________ ___ _________ ___ _________ _________.
__________ _____ ________ _______ _________ ______ ___ ___ ________ _______ ___ __________.
_____ ________ _________ ______ _________ ______ ________ _________ ________.
Skip in 10
Financial leverage refers to the use of various financial instruments or borrowed capital (such as loans and bonds) to increase the potential return on investment. It allows businesses to use debt to finance their operations and investments, with the expectation that the returns generated from these investments will be higher than the cost of borrowing. Financial leverage magnifies both potential profits and potential losses. In the context of accounting and finance for tourism managers, understanding financial leverage is crucial as it can significantly impact the financial stability and profitability of tourism businesses.
### Merits of Financial Leverage:
#### 1. Increased Return on Equity (ROE):
Financial leverage enables businesses to invest in profitable opportunities that they might not be able to afford otherwise. By using borrowed funds, a company can amplify its ROE. If the return on investment (ROI) from the project or investment is higher than the cost of borrowing, shareholders benefit from the increased ROE.
#### 2. Tax Benefits:
The interest paid on debt is tax-deductible in many jurisdictions. This tax
_______ _________ ___ _____ ___ ________ ____ ______ ____ __________ _____ __________.
______ _______ __________ ___ _____ ______ _______ _________ _________ _________ ___.
______ __________ __________ ________ _______ ______ ______ ____.
_________ _________ ______ ___ __________ ____.
________ _________ _______ ________ _____ _________ _____ _______ ________.
________ ________ ____ _________ ___ _________ _________ ______ ___ _____ ______.
_____ _______ ____ _____ __________ __________ ________ ____.
______ __________ _________ ________ ________ ________ _________.
________ _______ __________ ________ ________ _______ ______ _______ ___ ________.
_________ ___ ______ ________ ____ _____ ________ _________ __________ ___.
________ __________ ___ __________ _________ _________.
______ ___ _______ ____ _______ ___ ___ ______ ______.
______ _______ _____ __________ ________.
____ ____ __________ _____ _________.
_________ ________ _________ ______ _______ ___ ___.
___ ______ _________ ______ ______ ________ _____ _____.
____ __________ _______ _____ _________ __________ ______ ______ _______.
___ _________ ___ __________ _________ ___ __________ _______.
_____ ______ _______ ___ ________ ___ ________ _______ ___ ________ _____.
___ ______ ___ _______ ________ ______ ____ _________.
_________ ____ _______ ________ ______ _____ ________.
____ _____ _________ _____ ___ _________ ___ _______ _____ ____ _______ _______.
_______ _________ ____ ________ _____ _____ ____ ___ __________ ______ _____ _____.
__________ ___ ______ __________ ______ _______ _______.
______ ____ ____ __________ _______ ____ _____ ________ ____ _____.
_____ __________ __________ ___ ___ _____ ______ ___.
____ ___ __________ _______ ____ __________ _________ ________ ____ __________ __________.
_______ _________ ____ ___ _________ ________ _______ _______ __________.
_____ ______ __________ ____ _________ __________ ______ ___ _____.
______ _____ __________ _______ _______ ____ ____.
_______ ________ ___ ________ ___ __________.
____ ______ _____ ___ _______ ___ ______ __________ _______ ___.
____ __________ __________ ____ ______ ____ ______ _______ ______ __________ _________ ____.
________ __________ _____ __________ ______ _____ ___.
______ ________ ____ ______ _________ _______ _____ ____ ____ __________ _____.
_______ __________ _______ _______ ______ ______.
_______ _____ _______ __________ _________ ____.
___ ______ __________ __________ ___ ___.
___ _________ ______ ____ ___ ________ _____ _____ _________ ______ __________.
________ __________ ____ __________ _____ _____ _________ _______.
______ ___ ______ __________ ____.
______ _________ _____ ______ ___ _______ ________.
__________ _____ __________ ________ _____ ________ _____ ________.
__________ _______ _______ ___ _____ _______ _______ _________ _________ __________.
_____ ____ _________ _____ ___ ___ __________ __________ ______.
__________ ______ ________ ________ _______ _________ ___ _____.
________ ________ ___ _____ _______ __________ ________.
_________ ____ _______ __________ __________ ______ __________ _____.
______ ______ __________ _____ __________ ________ _______ ________ ___ ____ _________.
______ ___ ________ ______ __________.
________ _______ ____ _____ ___.
____ __________ ____ _________ ________ ____ ____ _____ ___ _________ ______ ______.
_________ _________ ____ _____ _________ ____ ______ ___ ______ ________ _____ _________.
____ _______ __________ _____ __________.
________ __________ __________ ___ ____ ____ ___.
________ ________ ____ ______ ____ __________ _________.
___ ____ ________ _______ _________ _______ ___ ________ _____ ___ ________ ________.
_______ ______ ______ ________ _________ ______ ___.
____ _________ ________ ________ ___ ____ ____ ________ ____ _____ _______.
_________ _________ ________ ________ __________ ________ __________ _____ ______ __________ __________ ______.
____ ___ _____ _________ ________ _________ _________ ___ ___ ____.
_________ _____ _______ __________ _________ ______ _____.
__________ _____ _____ ___ _______ ____.
___ ______ ________ ______ ____ _________ ______ _______ _______ ______ ______ ____.
___ __________ _______ _______ _____ _______ ___ __________ ____.
____ ________ ___ _________ ___ _________ _________.
__________ _____ ________ _______ _________ ______ ___ ___ ________ _______ ___ __________.
_____ ________ _________ ______ _________ ______ ________ _________ ________.
IGNOU ACADEMY
Your IGNOU journey, made easier.
- Solved Assignments
- Study Notes
- Guess Papers
- Question Papers
Continue Reading — It's Free
Sign in with Google to unlock more of this answer.
✓ Free access
✓ Unlock up to 60% of the answer
✓ No payment required
✓ Unlock up to 60% of the answer
✓ No payment required
Quick Google sign-in. No separate registration form.