Question

Define financial leverage and give two examples to support your definition. short answers please

Answer 1

Financial leverage is use of borrowed money to finance the purchase of Assets. This will be helpful in making the company acquire the proper assets through proper debt and they will be helping the company in longer solvency and longer sustainability. These financial leverage needs to be balanced well between the benefits of interest tax shield and the risk of financial distress.

Example of two financial leverage would be using of bank loan in order to purchase the land and building and use of long term bonds in order to purchase heavy machineries for updation of technology.