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financial leverage
by 趙永祥 2015-04-15 07:54:02, Reply(0), Views(651)



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Term of the Day

Date: Tuesday, April 14, 2015

financial leverage

The use of borrowed money to increase production volume, and thus salesand earnings. It is measured as the ratio of total debt to total assets. The greater the amount of debt, the greater the financial leverage.

Since interest is a fixed cost (which can be written off against revenue) a loanallows an organization to generate more earnings without a corresponding increase in the equity

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Usage Example
If you have strong financial leverage you will have the upper hand in a negotiation and be able to set the price.