True. The ultimate aim of financial leverage by using debt is to increase earnings of any business. This can be through capex, acquiring assets, equity investments, etc..
One of the targets from the financial leverage is increasing the earnings. Whereas the interest paid to the creditors is tax deductable.
But there are other targets from the financial leverage, such as acquiring additional assets, or restructuring the company's debts.
by
Muhammad Afaq , SENIOR FINANCIAL ACCOUNTANT , United Eddy Company (United Yousef M. Naghi Group)
1 true
here i perceived earnings as equity turnover. The firm can increase the its equity turnover by keeping higher proportion of debt in capital structure. Following ratio can be used to measure the financial measure
Financial Measure = Total Assets/Common Equity
But higher degree of financial leverage increases the financial risk of the firm.
