Category: FINANCIAL MANAGEMENT

Operating leverage: Operating leverage is concerned with the relationship between the firm’s sales revenue and its earnings before interest and taxes, or EBIT (Operating profit). Operating leverage is defined as the firm’s ability to use fixed operating costs to magnify the effects of changes in sales on its earnings before interest on tax. Degree of Operating Leverage The degree of Read More …

Meaning of Leverage The term leverage refers to an increased means of accomplishing some purpose. Leverage is used to lifting heavy objects, which may not be otherwise possible. In the financial point of view, leverage refers to the ability to use fixed cost assets or funds to increase the returns to shareholders. Generally, increases in leverage results in increased returns Read More …

It is also known as an intermediate approach. It is midway between Net Income Approach and Net Operating Income Approach. This approach resembles the Net Income Approach in arguing that capital structure and cost of capital affect the value of the firm but it discards the view that value of company will necessarily increase for all the degrees of debt-equity Read More …