When a firm spends more than it gains in revenue it is called a LOSS.
greater than
greater than
0.3 is greater than 0.08
0.4 is greater than 0.08
ROI will be greater than ROE.
A high degree of financial leverage means the benefits from tax-deductibility of interest(from additional debt) is more than offset by the increase in financial distress. The firm's fixed obligations are higher and the risk of a likely default is increased with a higher Debt to Equity ratio. There isn't any set out formula that sets the optimal leverage for a firm...but at some some point taking on more debt, with increases the risk anf thus the return of Equity holders further increases the risk of bondholders and creditors to the firm. Any default in payments leads to distress including bankruptcy, more financial burdens to fight off or succomb to bankruptcy, lower value of firms residual assets allocated to Equityholders and likelihood of the firm shotting down.
If a company's rate of return on total assets is ledd than the rate of return the company pays its creditors you have positive financial leverage.
When a firm spends more than it gains in revenue it is called a LOSS.
Key Points If value is added from financial leveraging then the associated risk will not have a negative effect.At an ideal level of financial leverage, a company's return on equity increases because the use of leverage increases stock volatility, increasing its level of risk which in turn increases returns.If earnings before interest and taxes are greater than the cost of financial leverage than the increased risk of leverage will be worthwhile. Terms solvency The state of having enough funds or liquid assets to pay all of one's debts; the state of being solvent. liquidity Availability of cash over short term: ability to service short-term debt.
The firm can afford to hire more workers.
make certain that the companies assets continues to be proportionally larger than the companies equity
If MR is greater than MC, the firm should increase their production. The ideal amount of production is determined by allowing the marginal cost to equal the marginal revenue.
this is obtained when a firm equates its marginal revenue to its marginal cost.At a level of output where MR exceeds MC,then the firm should increase output since the addition to revenue is greater than the addition to revenue.Where a firm's MR is less than its MC,the firm should lower its output since the addition to costs is greater than the addition to revenue.
if the MRP is greater than a firms MC
This ratio is used to identify the financial leverage of the company i.e. to identify the degree to which the firm's activities are funded by the owners money versus the money borrowed from creditors.The higher a company's degree of leverage, the more the company is considered risky.Formula:Net Debt / Equity
this tracks the financial components of the s & p 500, but moves 3 times greater than a normal average. in other words your leverage is 3:1. this can be fantastic if the index is moving in the direction in which your money is riding, but disastrous if it moves in the opposite direction of your position.