Degree of Financial Leverage
By
vijay
Filed under:
Study Abroad
A leverage ratio summarizing the affect a particular quantity of financial leverage has on a company’s earnings per share (EPS). Financial leverage involves using fixed costs to finance the firm, and will include higher expenditures before interest and taxes (EBIT). The higher the degree of financial leverage, the more volatile EPS will be, all other things remaining the same. In finance, leverage refers to the use of debt capital to supplement equity capital. Parties usually leverage to attempt to increase returns on equity capital, as it can increase the scope for gains or losses.