Leverage risk: the function of capital amplification not only amplifies the income but also the risk, so how to use the leverage of 10 times and how much to use it will vary from person to person. A higher level can use more than five times or even enough leverage. If those with lower levels also use high leverage, it will undoubtedly make the risk out of control.
Extended data:
First, financial leverage
Financial leverage is just a multiplication symbol. With this tool, the result of investment can be amplified, and whether the final result is profit or loss, it will increase in a fixed proportion.
Therefore, before using this tool, we must carefully analyze the income expectation and possible risks in investment projects. In addition, attention must be paid when using financial leverage tools.
Cash flow expenditure may increase, such as foreign exchange margin trading of Fuhui Global Jinhui. Otherwise, once the capital chain breaks, even if the final result may be huge gains, investors must go out early.
Leverage ratio is the ratio of risk to assets on a company's balance sheet. Leverage ratio is an index to measure the debt risk of a company, which reflects the repayment ability of the company from the side. Generally speaking, the leverage ratio of investment banks is relatively high. In 2007, the leverage ratio of Merrill Lynch was 28 times and that of Morgan Stanley was 33 times. ?
Second, the financial leverage effect
The leverage effect in finance, that is, the financial leverage effect, refers to the phenomenon caused by the existence of fixed fees. When a financial variable changes in a small range, another related variable will change in a large range.
That is to say, when enterprises adopt debt financing methods (such as bank loans, issuing bonds and preferred shares), the change rate of earnings per share of common stock is greater than that of earnings before interest and tax.
Because the financial expenses such as interest expense and preferred stock dividend are fixed, when the income before interest and tax increases, the fixed financial expenses per common stock will decrease relatively, thus bringing additional income to investors.
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