Explore BrainMass

Explore BrainMass

    What is financial leverage?

    Solution Preview

    1. Financial leverage refers to the use of fixed-income securities-debt and preferred stock-and financial risk is the additional risk placed on the common stockholders as a result of financial leverage.

    Conceptually, the firm has a certain amount of risk inherent in its operations; this is its business risk, which is defined ...

    Solution Summary

    The solution explains financial leverage with an example of a new company with equity owners only, and contrasts it to the same new company with debt and equity owners.