Effects of Financial Leverage

Financial leverage can be explained as the degree to which a corporation uses fixed-income stock options, such as debt and preferred equity value. With a high penetration of financial leverage occur high interest expenses. The use regarding borrowed money to raise production volume, and therefore sales and revenue. It is measured as the ratio of complete debt to complete assets. The greater volume of debt, the larger the financial influence. Financial leverage is generally known as trading on equity value.¬†Financial leverage uses debt instruments so the anticipated level return on the organization’s equity would increase.