What is the impact of excessive financial leverage on enterprises?

If the financial leverage is too high, it will increase the business risk of the enterprise. If the debt of the enterprise is too high, the profit earned by the enterprise is not enough to pay interest, or the sales volume is affected during the downturn of the industry, it may cause the risk of breaking the capital chain. So the financial leverage should not be too high. We should give full consideration to its scale and give full play to the advantages of financial leverage, so that the company can create more benefits for investors on the basis of limited funds.

The meaning of financial leverage

1. No matter how much profit the enterprise has, the interest on the debt is constant. Therefore, when the profit increases, the interest borne by each yuan of profit will be relatively reduced, thus bringing greater improvement to investors' income. The influence of this kind of debt on investors' income is called financial leverage.

2. The law of change is that as long as the fixed cost is not equal to zero, the operating leverage coefficient is always greater than1; The change of production and sales volume is opposite to the change of operating leverage coefficient; The cost index changes in the same direction as the operating leverage coefficient. The change of unit price is opposite to the change of operating leverage coefficient; At the same level of production and marketing, the greater the operating leverage coefficient, the greater the profit change and the greater the risk.

Evolution law of financial leverage

1. In the stage before the sales break-even point, the operating leverage coefficient increases with the increase of sales; In the stage after the sales break-even point, the operating leverage coefficient decreases with the increase of sales; When the sales amount reaches the breakeven point, the operating leverage coefficient approaches infinity, and the operating risk approaches infinity.

2. Under the condition of constant fixed cost, the greater the sales volume, the smaller the operating leverage coefficient and the smaller the operating risk; On the contrary, the smaller the sales volume, the greater the operating leverage coefficient and the greater the operating risk.

3. The degree of financial leverage is closely related to the financial risk. The greater the degree of financial leverage, the greater the financial risk, and vice versa. Therefore, the degree of financial leverage is not the greater the better, nor the smaller the better, which mainly depends on the specific production and operation conditions, financial risk tolerance and development potential of the enterprise.