inbound72228906.ppt - ANALYSIS FOR THE INVESTOR CHAPTER 10 LEVEARAGE AND EFFECT ON EARNINGS • The use of debt called financial leverage has a

inbound72228906.ppt - ANALYSIS FOR THE INVESTOR CHAPTER 10...

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ANALYSIS FOR THE INVESTOR CHAPTER # 10
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LEVEARAGE AND EFFECT ON LEVEARAGE AND EFFECT ON EARNINGS EARNINGS The use of debt, called financial leverage, has a significant impact on earnings. The existence of fixed operating costs, called operating leverage, also effects earnings. The higher the percentage of fixed operating costs, the greater the variation in income as a result of a variation in sales (revenue).
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FINANCIAL LEVERAGE AND FINANCIAL LEVERAGE AND MAGNIFICATION EFFECTS MAGNIFICATION EFFECTS The use of financing with a fixed charge (such as interest) is termed financial leverage. financial leverage is successful if the firm earns more on the borrowed funds than it pays to use them. It is not successful if the firm earns less on the borrowed funds than it pays to use them. using financial leverage results in a fixed financing charge that can materially affect the earnings available to the common shareholders .
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Cont. If financial leverage is used, a rise in EBIT will cause an even greater rise in net income, and a decrease in EBIT will cause an even greater decrease in net income .
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  • Fall '16
  • faheem
  • Dividend, Dividend yield, P/E ratio

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