Financial leverage: What Is Financial Leverage

What Is Financial Leverage? Just as operating leverage results from the existence of operating expenses in the enterprise's income stream, financial leverage results from the presence of fixed financial charges in the firm's income stream. In fact, financial leverage relates to financing activities (i.e., the cost of raising funds from different sources carrying fixed charges or not involving fixed charges). For example, if funds are raised through long-term debts such as bonds and ... Financial leverage is borrowing money from different lenders to invest in the business's assets. Click here to get details on all aspects of financial leverage. 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 the meaning of financial leverage in financial management. Explore different types, pros, cons, and ratio formula.