Asked in Example Sentences
What do youmean by composite leverage?
Composite leverage equals financial leverage times operating leverage. Composite leverage is used to calculate the combined effect of operating and financial leverages. Leverage is the ratio of a company's debt to its equity. ...
Is financial leverage positive if the interest rate on debt is lower than the return on total assets?
If a company's rate of return on total assets is ledd than the rate of return the company pays its creditors you have positive financial leverage. ...
Asked in Investing and Financial Markets
What is the impact of financial leverage on stockholders?
Financial leverage makes no impact on stockholders as any stockholder who prefers the proposed capital structure (ie leverage) can simply create it using homemade leverage. Note: financial leverage refers to the extent to which a firm relies on debt. Homemade leverage is the use of personal borrowing to change the overall amount of financial leverage to which the individual is exposed ...
What is financial leverage ratio?
Leverage is using debt to finance investments. Leverage ratio is the ratio between the size of the debt and some metric for the value of the investment. There are several financial leverage ratios, for companies the debt-to-equity ratio is the most common one: Total debt / shareholder equity. As an example we can use the debt-to-equity ratio for a home with a market value of $110,000 and a mortgage of $100,000: Debt is $100,000 and equity is $10,000 (market value minus debt), giving...
Asked in Business & Finance
How do you figure out the degree of financial leverage at a company?
Leverage is the amount of debt relative to shareholder capital, or equity. So a company with 3 times as much debt as equity is three times leveraged. ...
What are some limitations of financial leverage?
Financial leverage offers many advantages for a firm to move forward. But like most things, there are some limitations that come with financial leverage as well. For example, when a company uses financial leverage they are technically borrowing funds. Borrowing money is always going to develop a cloud whether it's one that just creates a little shade or one that causes a thunderstorm. When a company borrows constantly, they are creating an image that they might be of high risk. As a...
What happens to the cost of debt and equity when leverage increases?
Key Points If value is added from financial leveraging then the associated risk will not have a negative effect.At an ideal level of financial leverage, a company's return on equity increases because the use of leverage increases stock volatility, increasing its level of risk which in turn increases returns.If earnings before interest and taxes are greater than the cost of financial leverage than the increased risk of leverage will be worthwhile. Terms solvency The state of having enough funds or liquid assets...
Discuss the limitations of financial leverage?
The more debt in the capital structure of the firm, the greater the financial risk to the lender. This results in higher average interest rates to be paid and restrictions on the corporation. Common stockholders may become concerned and drive down the price of the stock. ...
Asked in The Difference Between
What is the difference between Leverage and Unlevering?
In finance, leverage is a general term for any technique to multiply gains and losses. The unlevered beta is the beta of a company without any debt. Unlevering a beta removes the financial effects from leverage. ...
Asked in Investing and Financial Markets, Definitions, Capital Equipment Leasing, Investment Banking
How is Financial leverage ratio calculated?
This ratio is used to identify the financial leverage of the company i.e. to identify the degree to which the firm's activities are funded by the owners money versus the money borrowed from creditors. The higher a company's degree of leverage, the more the company is considered risky. Formula: Net Debt / Equity ...
What is the meaning of the term financial leverage?
Financial leverage means the use of borrowed money to increase production volume, and thus sales and earnings. It is measured as the ratio of total debt to total assets. The greater the amount of debt, the greater the financial leverage. Since interest is a fixed cost (which can be written off against revenue) a loan allows an organization to generate more earnings without a corresponding increase in the equity capital requiring increased dividend payments(which cannot be written off against the earnings). However, while high leverage...
Asked in Business & Finance
What is the financial leverage multiplier?
The leverage multiplier equals to total asset dividing by shareholders' equity. The high leverage multiplier indicates that the firms decide to overcome the high levels of borrowing or debt on which it must pay interest. The higher ratio means higher liability than its shareholders' equity. Essentially, the ratio is mainly used to help firms making decision about how to raise funds by undertaking debts. A company will only undertake significant amounts of debt when it believes that return on assets (ROA) will be...
Asked in Debt Collection
Where can one find help for dealing with debt collection?
When dealing with debt collection it is in ones best interest to speak to a financial advisor or financial planner. This will ensure one has the knowledge to get back on track and out of debt. ...
What effect does leasing have on a firm's capital structure?
Leasing is a substitute for debt financing, so leasing increases a firm's financial leverage. ...
Asked in Business & Finance
A high degree of financial leverage means?
A high degree of financial leverage means the benefits from tax-deductibility of interest(from additional debt) is more than offset by the increase in financial distress. The firm's fixed obligations are higher and the risk of a likely default is increased with a higher Debt to Equity ratio. There isn't any set out formula that sets the optimal leverage for a firm...but at some some point taking on more debt, with increases the risk anf thus the return of Equity holders further increases the...
Asked in Business & Finance
What are the advantages and disadvantages of financial leverage?
A major advantage is optimization of shareholders' wealth through mix of debt and equity, taking advantage of the U.S. tax system which favors debt financing by making interest deductible from income when calculating the company's federal tax liability. Low cost debt, especially when interest is low, would increase the return of equity relative to the return of assets. A disadvantage would be if the debt becomes too costly, it reduces the return of equity below the return of assets. Companies that are...
Can a debt collector add interest fees etc to a debt they have against you in NY?
Yes, New York allows a debt collector to add interest on a collection debt. For more information please visit www.OntrackFinancialGroup.com Ontrack Financial Group llc 888-686-6834 ...
How do you calculate debt service?
Debt service is the total of the loan payments (principal + interest). This is needed for a cash flow projection, whereas you only need the interest portion for a financial statement forecast/budget. ...
Asked in Debt and Bankruptcy
What are Debt or Leveraging Ratios?
Debt Ratios measure the company's ability to repay its long-term debt commitments. They are used to calculate the company's financial leverage. Leverage refers to the amount of money borrowed in order to maintain the stable/steady operation of the organization. The Ratios that fall under this category are: 1. Debt Ratio 2. Debt to Equity Ratio 3. Interest Coverage Ratio 4. Debt Service Coverage Ratio Debt Ratio: Debt Ratio is a ratio that indicates the percentage of a company's assets that are provided through debt. Companies try to maintain...
Asked in Credit and Debit Cards, Bankruptcy Law, Oregon
What debt must be filed?
To get out of debt has become easy now-a-days, as many finance companies offer loans with low interest rates. The rate of interest you are offered always remains much lower to that of all your existing debt. With the financial process you reduce your debt burden by 50% to 60%. They also have offers for customers with bad credits. It is a best financial service for low rate debt consolidation loans, student debt consolidation, and personal debt consolidation loan ...
Asked in Loans, Debt Consolidation
Can you recommend a low interest debt consolidation loan?
There are several places that would give someone a low interest debt consolidation loan. Some options are TDbank and WellsFargo, but you should always ask your financial adviser first. ...
What does a high times interest earned indicate?
A high Times Interest Earned (TIE) value indicates that the business entity is able to make the interest payments it owes on debt, eg if they took out a loan, the TIE is how much of the Interest from the loan they have earned back from whatever the loan was used to buy or invest in. A high number value indicates that they are earning more than what they must pay back in Interest, which means that the money from the loan...