UGC NET COMMERCE November 2017(Paper-II) Q33
0. Main objective of employing Financial Leverage is to:
- Option : D
- Explanation : Financial leverage: Financial leverage is associated with financing activities of a firm. It represents the relationship between the firm’s earnings before interest and taxes (EBIT) (or operating profit) and earnings available to ordinary shareholders. Financial leverage is sometimes, known as trading on equity.
Definition: Financial leverage may be defined as the payment of fixed rate of interest for the use of fixed interest-bearing securities, to magnify the rate of return as equity shares. Financial leverages arise from the existence of fixed interest expenses. When a firm has fixed interest expenses, one per cent change in EBIT leads to more than one per cent change in PBT or PAT or EPS.
