What is a leveraged enterprise?

There is no such term as leveraged enterprise, but it can be inferred from the relevant terms such as "leverage effect" in economics that leveraged enterprises refer to small and wide enterprises, that is, enterprises with investment capital less than income. Financial leverage can amplify the use of funds by enterprises. When enterprises use liabilities, the effect of financial leverage will appear.

However, the more debt, the better. We must first analyze whether the rate of return after fund raising is greater than the interest rate. If this is the case, the use of debt will greatly improve the profit per share of the enterprise, and the debt reflects the positive leverage effect. On the contrary, the use of debt will greatly reduce the profit per share of enterprises, and debt reflects the negative leverage effect.

Of course, this is only to illustrate the financial leverage effect of a single debt. For an enterprise, there are many financing channels, and the financial leverage effect is often reflected by the combined financing structure.

Extended data:

Characteristics of leveraged enterprises:

1, and the investment profit rate is greater than the debt interest rate. At this time, the enterprise is profitable, and the income (that is, income before interest and tax) created by the enterprise using debt funds has a part of surplus besides debt interest, which belongs to the enterprise owner.

2. The profit rate of investment is less than the interest rate of liabilities. The benefits created by the debt funds used by enterprises are not enough to pay the debt interest, and some enterprises that are not enough to pay need to make up for it with some profits created by equity funds. This will reduce the return on the use of equity funds by enterprises.

3. When the investment profit rate is greater than the debt profit rate. Financial leverage will play a positive role, and the result is that business owners will get more extra income. The extra profit brought by this kind of financial leverage is financial leverage interest.

4. When the investment profit rate is less than the debt profit rate. Financial leverage will have negative effects, and the consequence is that business owners will bear greater additional losses. These extra losses constitute the financial risk of the enterprise and even lead to the bankruptcy of the enterprise. This kind of uncertainty is the financial risk that enterprises take by using liabilities.

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