A company president remarked, “The operations of our company are such that we can take advantage of only a minor amount of financial leverage

Financial leverage is the action of a firm using some financing activities such as borrowing money to increase the rates of returns for the firm’s common shareholders. The benefit for common shareholders with financial leverage is that even if a firm has low income it can use financial leverage to allow common shareholders to have high returns (Whalen, Baginski, & Bradshaw, 2018). The reasoning the company president had in his or her comment is that the company might not be operating efficiently to use more leverage. This inefficiency of not using leverage may come from the company not being able to bring in enough income to gain more assets.

Timothy

References

Whalen, J., Baginski, S., & Bradshaw, M. (2018). Financial reporting, financial statement

analysis and valuation (9th ed.). [Adobe Digital Editions version]. Retrieved from

https://www.gcumedia.com/digital-resources/cengage/2018/financial-reporting-financial-

statement-analysis-and-valuation_9e.php