This video consists of the following:
1. Concept of financial leverage : Financial leverage refers to the use of debt to acquire additional assets.
2. Outcomes of financial leverage:
i.
ROI is equal to Cost of Debt
ii.
ROI is less than Cost of Debt - Unfavorable
Financial Leverage
iii.
ROI is more than Cost of Debt - Favorable
Financial Leverage
3. Meaning of Trading on equity : Trading on equity occurs when a company incurs debt to acquire assets on which it can earn a return greater than the interest, cost of the debt.
If a company generates a profit through this financing technique, its shareholders earn a greater return on their investments. In this case, trading on equity is successful.
If the company earns less from the acquired assets than the cost of the debt, its shareholders earn a reduced return because of this activity.
Many companies use trading on equity rather than acquiring more equity capital, in an attempt to improve their earnings per share.
If a company generates a profit through this financing technique, its shareholders earn a greater return on their investments. In this case, trading on equity is successful.
If the company earns less from the acquired assets than the cost of the debt, its shareholders earn a reduced return because of this activity.
Many companies use trading on equity rather than acquiring more equity capital, in an attempt to improve their earnings per share.
4. Advantages of trading on equity
i.
Enhanced earnings
ii.
Favorable tax treatment
Referred books for Financial Management :
1. https://amzn.to/2EixnpN
( Financial Management: Theory and Practice by Prasanna Chandra )
2. https://amzn.to/2GB3Vxr
( Elements of Financial Management by S.N Maheshwari ) ****BEST BOOK FOR FM****
Sir , please say about management accounting theory only.
ReplyDeleteI'm the student of BBA
3rd sem is going on.
So please tell about management account .