Abstract
Leverage arises from corporate financing decisions—to what extent borrowed money is used to fund investments. Borrowing is a vital strategic decision because of three reasons. First, it can improve earnings and investment returns. Second, interest expenses create a tax shield, thereby reducing the net cost of debt. Third, leverage comes with financial risk regarding the ability to fulfill financial obligations. Therefore, balancing between the benefit and cost of leverage is essential for achieving the goal of value creation and shareholders’ wealth maximization.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Bibliography
Fitch (2020), Fitch Affirms Solar Capital Ratings at 'BBB-'; Outlook Stable, https://www.fitchratings.com/research/corporate-finance/fitch-affirms-solar-capital-ratings-at-bbb-outlook-stable-17-04-2020
Guichard, B. (2022). Carnival: Enormous Risk For LT Common Stockholders. Available at Seeking Alpha, https://seekingalpha.com/article/4515978-carnival-enormous-risk-for-lt-common-stockholders Accessed June 02, 2022.
Simply Wall St. (2022). Wide Open West (NYSE:WOW) Takes On Some Risk With Its Use Of Debt, Available at Simply Wall St. https://simplywall.st/stocks/us/media/nyse-wow/wideopenwest/news/wideopenwest-nysewow-takes-on-some-risk-with-its-use-of-debt Accessed June 06, 2022.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2023 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Kulwizira Lukanima, B. (2023). Financial Leverage Analysis. In: Corporate Valuation. Classroom Companion: Business. Springer, Cham. https://doi.org/10.1007/978-3-031-28267-6_8
Download citation
DOI: https://doi.org/10.1007/978-3-031-28267-6_8
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-031-28266-9
Online ISBN: 978-3-031-28267-6
eBook Packages: Economics and FinanceEconomics and Finance (R0)