Financial leverage is the type of debt that a business entity or a firm utilizes to purchase more assets in order to run business operations. A business entity utilizes financial leverage in the case when it is hesitant to invest equity capital into business
Financial leverage is not always bad, however it can increase the shareholders’ return on investment and often there are tax advantages associated with borrowing also called leverage.
Negative Financial Leverage Definition: Negative financial leverage is a situation in which the fixed return to a company’s creditors and preferred stockholders is greater than the return on total assets. In this situation, the return on common stockholders’ equity will be less than the
Financial Leverage Definition: Acquiring assets with funds that have been obtained from creditors or from preferred stockholders at a fixed rate of return.