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 what financial leverage is, how it works, and how to calculate it using a formula. Find out the pros and cons of using debt to build capital and expand a business, and see examples of financial leverage in action. 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. What is Financial Leverage? Financial Leverage refers to the borrowing of capital by a corporation from lenders, such as banks, to fund its operations and long-term investments in fixed assets (PP&E).
