During times of changing technology, culture, lifestyle and beliefs, but the same was only one thing - money.For centuries, they are present in the daily lives of people in performing their functions.However, during the development of the Knights Templar of the financial sphere has acquired a special meaning, systems have been developed and laws, enjoyed until now.On one of these systems, we will discuss today.
Leverage - is the combined effect on earnings by using equity and debt.In order to better clarify this concept, let's consider the following example: the company management decided to implement a project that is guaranteed to make a profit, but its own sources of funding is not enough, becauseprofit is limited and often located in different assets.Borrowed funds also help to get the required amount in the right amount on time - this is the leverage.
It is understood that such measures are objectively necessary, to increase the return on your capital.It is important to realize that the financial leverage (leverage) - it's not everyday situation for taking credit for unspecified purpose.With this step carefully calculate all the possible options, check whether the company is prepared to the requirements for this phase.For example, the margin trading leverage is available only if the share capital is not less than 50% of equity.
In today's world this tool is most often used by traders of assets, resources, or simply currency speculators.Often, to make a good profit on transactions in this area, they do not have their own capital, in connection with which they use the services of investors and creditors.In addition to objective reasons, the calculations are related to possible loss or gain on completion of the project.This fact shows how really necessary financial leverage.The formula calculation is very simple and it looks so:
EGF = (1 - T) x (RA - RC) x (D \ E), where:
T - income tax (decimal expression);
RA - return on assets of the company in% (pp. 190 and 300 form number 2);
RD - interest on the loan;
D - borrowed amount;
E - the total amount of your capital (p. 490 form number 1).
result can be only two.If the answer is minus, the leverage will only aggravate the situation in your company, if a plus sign, then you have a good chance to increase your profits.
I would also like to say a few words about the nature and importance of such a tool for you:
1) the more money you have in a loan, the greater the risk of failure;
2) financial leverage makes your company dependent on creditors or investors;
3) such agreements oblige you to make monthly and other payments that a decrease in profits and net of tax may force you to liquidate some assets;
4), even a small increase in profits at the expense of attracting debt capital can significantly increase your "white" revenue.
If you do not use financial leverage, and all your activities at the expense of equity and profit, then all the rules of the science of finance, your company is recognized financially independent.
