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Foundations of Business - Standalo...

4th Edition
William M. Pride + 2 others
ISBN: 9781285193946

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BuyFindarrow_forward

Foundations of Business - Standalo...

4th Edition
William M. Pride + 2 others
ISBN: 9781285193946
Textbook Problem

How can a small-business owner or corporate manager use financial leverage to improve the firm’s profits and return on owners’ equity?

Summary Introduction

To Discuss: The ways corporate manager or a small business owner utilise financial leverage for the improvement of the firm’s profits and return on owners’ equity.

Introduction: Financial leverage, likewise called trading on equity, is the budgetary trade-off between the return on the issuance of preferred stock or debt and the cost of maintaining that debt or preferred stock.

Explanation

The ways small business owner or corporate manager use financial leverage to improve the firm’s profits and return on owners’ equity is as follows:

Financial leverage use is the utilization of borrowed funds to increase the return on owners' equity. The standards of financial leverage work provided that a company's profits are bigger than the interest charged for the borrowed cash...

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