Explain various financial ratios falling under the category of liquidity ratios.Explain the concept of financial leverage.
inancial leverage is the amount of debt that an entity uses to buy more assets. Leverage is employed to avoid using too much equity to fund operations. An excessive amount of financial leverage increases the risk of failure, since it becomes more difficult to repay debt.
The financial leverage formula is measured as the ratio of total debt to total assets. As the proportion of debt to assets increases, so too does the amount of financial leverage. Financial leverage is favorable when the uses to which debt can be put generate returns greater than the interest expense associated with the debt. Many companies use financial leverage rather than acquiring more equity capital, which could reduce the earnings per share of existing shareholders.
Financial leverage has two primary advantages:
- Enhanced earnings. Financial leverage may allow an entity to earn a disproportionate amount on its assets.
- Favorable
_________ ___ ______ __________ _____ ________ ____ ____.
______ __________ _________ __________ __________ _________ ____ ___ ________ _________ ___ _______.
___ _________ ______ __________ __________ ____ __________.
_________ ____ __________ ____ ___ __________ _________.
____ _______ _______ __________ ______ __________ _________ ______ ____ ________ _________.
________ ________ _________ _____ __________ ______ __________ ___ ____ _________.
_______ _________ ______ ________ ______ _______ __________ ___.
______ _____ _____ _____ _______ ______ _____ ______ _________ ____ ___.
_______ ______ ______ _____ _______ ________ ______ _______ ____ ________ ___ ________.
__________ _________ ____ __________ _____ ________ ______ _____ ______ ______ ________.
______ ______ _________ ___ _________ _________ ___.
___ ______ _________ _______ ______ ___ ______ ___ ______ _______ ___ ________.
______ ___ ____ ________ ______ _______ __________ __________ _________.
___ _______ ________ ______ ______ ______ ___.
__________ ___ ________ __________ _______ ________ __________ ______ ___ _______ ________.
________ ____ ______ _________ _____.
_____ _____ ________ _________ _______.
______ ____ ___ ______ ______ __________.
_______ ___ _______ ________ ___.
_________ ____ _______ _____ ___ __________ ____ _______ ___ _________.
______ __________ __________ _______ _______ _________ _____ ________ __________ ____ _________ ___.
_________ ________ _________ _______ _______ ____ _________ ____ _______.
__________ ______ __________ ____ _______ ___.
_________ ______ _____ ____ _____ __________.
___ ________ ___ ________ ______ _________ ___ _______.
_____ __________ _______ _________ ____ _________ ___ _________ _______ ____ _______.
_________ ________ _________ _____ ____ ____ ____ ______ _______ ___ __________ _____.
_______ _____ ______ ________ _________ __________ ______ ________ ________ ________ _______ _________.
____ ____ _______ ___ ____ ___ _______ __________ _____ ___.
__________ _______ ________.
- Solved Assignments
- Study Notes
- Guess Papers
- Question Papers
✓ Unlock up to 60% of the answer
✓ No payment required