Financial leverage serves to magnify changes in net income and related financial ratios. Financial leverage can be good when the company is growing with sales increasing and operating margins healthy. Financial leverage can be a problem in a weak economy causing sales to decline causing lower margins. Financial leverage will as you will determine through your research a major component in the potential growth of a corporation and needs to be implemented wisely and effectively. Financial leverage is a component for future expansion and growth not the only component.
Research the impact of financial leverage on earnings and performance measures. Present, describe, and illustrate the leverage relation between earnings before interest and taxes (EBIT) and net income. Develop numerical examples to illustrate the concepts as you respond to the questions.
Write a six page APA report not including title, abstract and reference pages answering the questions below. Do not just answer the questions, but use the questions to formulate your report. Your paper should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic.
Questions to be answered in your report:
Write a report that outlines the topics –
Present, describe and illustrate the leverage relation between ROE and ROI. Develop numerical examples to illustrate the concepts.
Present, describe and illustrate the leverage relation between EBIT and net income. Develop numerical examples to illustrate the concepts.
Requirements of the Assignment:
All papers must follow all APA requirements
All papers must have a reference page. The textbook is an acceptable source.
Body of the paper 6 pages, no more or less.
Title page, abstract, and reference pages are required. However, they do not count towards any page count.
Writing should reflect an understanding of the chapter’s basic concepts, thorough research, and logic and critical thinking skills.
The introduction is attention getting with sufficient background information to establish the topic and a clear thesis statement.
The conclusion summarizes the main points and leaves the reader with a strong comprehension of the paper’s significance and the author’s understanding.
Grammatically correct – No spelling, grammar, or mechanics errors.
Do not use the first person.
