Dear Opie,
Financial leverage is defined as "The degree to which an investor or
business is utilizing borrowed money". (Investor Words.com "financial
leverage", <http://www.investorwords.com/1952/financial_leverage.html>).
The disadvantages of financial leverage are explained in this
defintion: "Companies that are highly leveraged may be at risk of
bankruptcy if they are unable to make payments on their debt ; they
may also be unable to find new lenders in the future". (ibid).
There are also advantages:
"Financial leverage is not always bad, however; it can increase the
shareholders ' return on their investment and often there are tax
advantages associated with borrowing." (ibid).
More on the issue:
Taking a Chance on Debt for Financial Leverage, Adapted From:
Accounting For Dummies, 3rd Edition
<http://www.dummies.com/WileyCDA/DummiesArticle/id-2845.html>
Old National, Financial Leverage
<http://partners.financenter.com/oldnational/learn/guides/smbizfinancing/sbfin_leverage.fcs>
Finance & Accounting for Nonfinancial Managers. 3rd ed, Steven A.
Finkler, Prentice Hall Trade. 2002. (Ch. 11)
I hope this answered your question. Please contact me if you need any
clarification on this answer before you rate it. My search terms were
:
financial leverage ; with terms such as:
pros cons advatages disadvatages |
