Leverage

2.1.2. The Trade-off Theory:- In all of capital structure theories, a decision maker managing a firm evaluates the various costs and benefits of alternative leverage plans. Often it is assumed that an interior solution is obtained so that marginal costs and marginal benefits are balanced. The trade-off theory of capital structure refers to the concept that a firm chooses how much debt finance and how much equity finance to use by balancing the costs and benefits. The trade-off…

First, according to the leverage effect hypothesis proposed by Black (1976), financial leverage amplifies with the declines of the stock prices which contribute to increase the stock price volatility. Since these leverage effects are related or identical to asymmetric volatility, the presence of time-varying risk-return relationship could be reflected by asymmetric volatility. Second, the expected risk-return relationship can also help explain the leverage effect. The stock prices decline…

I will be conducing a leverage-debt ratio. A leverage debt ratio is used to measure the degree to which a firm relies on borrowed funds in its day to day operations. Conclusively, a firm that takes too much debt could experience problems repaying lenders or meeting their promises to shareholders. The ratio measures to what extent the company is financed by borrowed funds that must be repaid. Per the financial statement of Canadian Tire, specifically the balance sheet Canadian Tire’s total…

asset turnover of 1.48, and financial leverage of 2.28 (average total assets divided by the average common equity). Despite the company’s remarkable rate of return, Starbucks’s competitor, Dunkin Doughnuts had a slightly higher rate of return of 45.59% in 2014. Dunkin Doughnuts rate of return is a product of their company’s net profit margin of 23.55%, asset turnover of 0.23, and financial leverage of 8.27. Starbucks net profit margin and financial leverage were both less compared to Dunkin…

what way and to ‎what extent. However, the overall effect of leverage on firm’s value is still a debatable issue and ‎there is no certainty about it. This research aims to examine the impact of capital structure decision ‎on firm value for firms listed on American stock exchanges and included within S&P 500 index, in ‎addition to examining determinants of leverage. Furthermore, the research tested empirically the ‎influence of leverage structure on firm value given different growth and size…

securitization and then transformed into securities. The common knowledge indicated that leverage was necessarily and directly correlated with improving in returns. Nonetheless, the theories…

The authors also note that parts of the former Soviet Union like Georgia and Armenia were categorized as low-linkage and high-leverage countries. Both these countries were dependent on foreign aid and therefore leveraged by the west. On the other hand, neither Georgia nor any country of the South Caucasus was offered benefits of entering European networks and institutions as opposed…

Overall, it can be concluded that KMG’s profitability has been falling over time. Gross profit margin went down from 32.9% to 27.6% in the period of 2010-2013. As KMG’s upstream, midstream and downstream operations volume increased, it can be concluded that falling gross profit is a result of a rising cost, particularly maintenance and extraction costs. In the same period, net profit margin went down from 23.6% to 15.0%, hitting 14.0% in 2013. In a similar trend, KMG’s ROA and ROCE have fallen…

dual increase in debt and equity financing indicates that the company is trying to establish its optimization of financial leverage in order to reduce the cost of financial distress. In addition, the increase in equity financing reduces the costs related to debt financing. By comparing to the equity financing, the table further shows that the company did not low the leverage from debt…

Due to a great number of empirical researches based on the US firms, it is necessary to test the robustness of these findings outside the US(Rajan and Zigales, 1995). They found similar leverage levels and negative associations between leverage level and profitability across the G-7 countries in spite of different institutional structures. Kimberly(2000) tested firms in 14 European countries and found the similar results. High debt level could lower weighted average…