Seek a literature review on the theory of the effect of financial leverage

1. EBIT.

Rate. The size of the EBIT margin directly affects the financial leverage factor.

the size of the country; 2. The interest rate of the debt.

in total capital, capital structure.

At the same level as the EBIT margin, the level of the interest on debt ratio also has a direct impact on the financial leverage factor and earnings per share.

3. Capital structure. The capital of the enterprise is the equity fund and the debt fund, which constitute the capital structure of the enterprise. The ratio of debt to total capital, i.e., debt ratio, is one of the factors affecting financial leverage.

Financial leverage refers to the phenomenon that when one financial variable changes by a small margin, another related variable changes by a large amount due to the existence of fixed costs. In other words, the change rate of earnings per common share generated by the use of debt financing is greater than the change rate of EBIT.

As long as the rate of return on investment is greater than the rate of interest on debt, financial leverage will make equity capital.

Earnings are in absolute terms due to debt operations.

increase, thereby making the rate of return on equity capital.

Greater than the profit margin of enterprise investment. And the higher the debt ratio, the greater the financial leverage benefit, so the essence of the financial leverage benefit is that the investment profit rate of the enterprise is greater than the debt interest rate.

However, if the rate of return on investment of an enterprise is equal to or less than the interest rate on debt, then the profit generated by the difference in the production of the debt can only or is not enough to make up for the interest required by the debt, and even the profit obtained by using equity capital is not enough to make up for the interest, and it has to reduce the equity capital to repay the debt, which is the essence of financial leverage loss.

The financial leverage effect of liabilities is usually measured by the financial leverage coefficient, which is reflected by the dynamic data of the second phase and refers to the multiple of the change rate of the company's equity capital profit relative to the pre-tax profit change rate.

The financial activities of a business are fraught with risk. The factors that affect financial risk include changes in the supply and demand of assets, changes in profit levels, and corporate profitability.

changes, the degree of financial leverage utilization of enterprises, etc. Among them, financial leverage has the greatest impact on financial risk. The financial risk increases with the increase of the financial leverage factor.

Financial leverage is a phenomenon in which the change rate of common stock earnings (or earnings per share) of a company is greater than the change rate of EBIT due to the existence of fixed capital costs (interest expense, preferred stock dividends). The leverage effect in financial management refers to the phenomenon that when one financial variable changes in a small amount due to a specific fixed expenditure or expense, another related financial variable changes in a relatively large way. It includes three forms: operating leverage, financial leverage, and total leverage.

The main reasons for the financial leverage effect are: (1): As long as the company has a fixed cost of capital, the change rate of earnings per share will be greater than the change rate of EBIT, and there is a financial leverage effect.

2): Different levels of EBIT have different levels of financial leverage (the higher the level of EBIT, the lower the degree of financial leverage) – measured by the financial leverage factor (DFL).

The principle of financial leverage is arguably the most important of corporate financing strategies, as investors usually focus on the level of financial leverage of a company. To put it simply, the principle of financial leverage refers to the optimization between shareholder returns and investment returns while reducing shareholder risk through borrowing and investing. The core concept of financial leverage is the increase in the financial benefits obtained from borrowing debt to invest.

In fact, if a company needs to borrow money for financing, it will involve the distribution of shareholders' rights and creditors' rights. For example, if an enterprise needs to raise 200 million yuan (the unit we call the principal) to invest, and its total shareholders' equity is 100 million yuan, then if the enterprise raises through equity financing, the equity share will be diluted, and the per capita income of shareholders will also shrink. However, if the company invests through borrowing, then the return on investment can increase, so the growth rate and rate of return of the company's shareholders' equity will also increase accordingly, and financial leverage is formed based on this principle.

In other words, the essence of financial leverage is a method for enterprises to increase their returns through debt financing without increasing the rate of return on equity. The "additional income" obtained by the enterprise through borrowing is called "leveraged profit", and this leveraged profit or financial income is equivalent to the financial income (EBIT-EPS) achieved by the difference between the rate of return on the capital investment obtained by the enterprise through borrowing and the cost of borrowing.

Here, EBIT is the company's diversified earnings, and EPS is earnings per share.

In addition, corporate financial leverage includes debt leverage and profit leverage, that is, the relationship between the expected rate of return on the expansion of corporate net income and the utilization rate of debt. Therefore, if an enterprise expands its business scale and achieves economic growth through debt financing, the level of financial leverage will also have a different impact, which needs to be evaluated and judged by investors according to the needs of the enterprise itself.

In short, the principle of financial leverage is essentially a strategy for enterprises to achieve a balance between shareholders' equity and debtors' returns by borrowing bridge and late debt when making investments, and it needs to be evaluated according to the company's own financial situation, market prospects and financing needs, so as to avoid excessive loans and increase financial risks, and maintain the financial soundness of the enterprise.

Answer] :d This question examines the concept of financial leverage. Financial leverage, also known as financing leverage, refers to the phenomenon that the change rate of the net profit margin (or earnings per share) of equity capital is greater than the rate of change of the EBIT (or EBIT) due to the existence of fixed financing costs such as debt interest.