Financial leverage: Learn what financial leverage is

Learn what financial leverage is, how to calculate it, and why it matters for businesses and investors. Explore different financial leverage ratios, examples, and the difference between operating and financial leverage. Financial Leverage – Meaning Financial leverage means the presence of debt in the capital structure of a firm. In other words, it is the existence of fixed-charge bearing capital, which may include preference shares along with debentures, term loans, etc. The objective of introducing leverage to the capital is to achieve the maximization of the wealth of the shareholder. After reading this article you will learn about Financial Leverage:- 1. Meaning of Financial Leverage 2. Types of Financial Leverage 3. Degree 4. EBIT-EPS Analysis. Meaning of Financial Leverage: Financial leverage may be expressed when the residual net income (earnings after interest and taxes and preference dividend) varies not in proportion with operating profit (EBIT). This leverage reveals the changes in taxable income in comparison with the changes in operation. In other words, a major ... Learn how financial leverage is the use of borrowed money to finance the purchase of assets and increase returns. Find out how to measure financial leverage using debt-to-equity ratio and other ratios, and what are the risks and benefits of using leverage.