Discuss and define financial risk, financial leverage, and negative financial leverage
Financial risk occurs when a company has a high level of debt. If the company's plans (for earnings or profits) are not met, its cash flows may be weak. This may make the company unable to pay the principal amount of its debt at the maturity date or even to make periodic interest payments. Creditors can then force the company into bankruptcy.
Financial leverage is also known as trading on the equity. If a corporation earns more from the funds it raises by incurring long-term debt than it pays in interest on the debt, the excess will increase its earnings for the stockholders. The debt to equity ratio is considered an overall measure of a company's financial leverage.
Negative financial leverage occurs when the earnings from a company's investments do not exceed its interest payments.
You might also like to view...
Companies have acted on the false assumption that sustainability will add costs and decrease their competitiveness
Indicate whether the statement is true or false
The material mix variance measure the difference between the actual total quantity of input and the standard total quantity allowed based on output
Indicate whether the statement is true or false
With regard to the go-to-market strategy component of the venture concept reality check, which of the following is an important aspect of this investigation?
a. To determine if target customers agree with the intended channel strategy b. To determine where target customers get their information about products/services like yours c. Both A and B d. Neither A nor B
Multinational corporations can be U.S. companies with operations in other countries.
Answer the following statement true (T) or false (F)