Finance Assignment | Professional Writing
Financial statement ratio analysis can help a user in making a more informed decision about the financial situation of the company but the ratios cannot O identify signals about the company’s cash flows. O determine the future performance of a company. O identify operating efficiency problems. O be manipulated. Leverage refers to the increase in return on equity that a company can earn (over and above its return on assets) as a result of borrowing money from debt holders.
As a company continues to borrow from debt holders, O it will be able to negotiate more favourable borrowing terms, thereby reducing the cost of financing. O the increased size of the company promotes stability and decreases risk. O the leverage effect will continually increase return on equity. O eventually the optimal capital structure will decrease the return on equity.
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