Question

Describe three ways of leveraging so as to multiply assets in a free-market economy

Answer 1

Three ways of leveraging where we multiply assets in free market

1) Operational leverage: When the sales of the company increases than there will be a growth in the operating Income of a company.When the company has high operating leverage it is earning high profit which can be used for attaining assets.

2) Financial leverage: The technique to buy assets from borrowing funds is called financial leverage. The company will see how much risk they can take and buy assets. Asset price appreciation and also the asset after tax income are considered and it should be more than the borrowed amount.

3) Combined leverage: Usage both operation and financial leverage is called combined leverage