Leverages

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financial leverages by jim

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Leverages

  1. 1. Leverages
  2. 2. Meaning Leverage is an investment technique in which you use a small amount of your own money to make an investment of much larger value. In that way, leverage gives you significant financial power.
  3. 3. Types of Leverages <ul><li>Operating leverage </li></ul><ul><li>Financial leverage </li></ul><ul><li>Combined leverage </li></ul>
  4. 4. Operating leverage <ul><li>Operating leverage arises from the existence of fixed operating expenses </li></ul><ul><li>Operating leverage = Contribution/Operating Profit </li></ul>
  5. 5. Financial leverage <ul><li>Financial leverage may b defined as the tendency of the residual net income to vary disproportionately with the operating profit. </li></ul><ul><li>It indicates the change that takes place in the taxable income as the result of the change in the operating profit. </li></ul><ul><li>FL = OP(EBIT)/ PBT </li></ul>
  6. 6. Combined leverage <ul><li>Combined leverage = Contribution/PBT </li></ul>
  7. 7. Significance of leverages
  8. 8. Thank u……….

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