Financial leverage, also known as financing leverage, capital leverage or debt management, refers to the use of debt financing by enterprises when making capital structure decisions. Reasonable and effective use of financial leverage can reduce the cost of capital and improve the profit rate of its own funds. Since 2009, due to the expectation of RMB appreciation, excessive foreign exchange reserves and many other factors, China's asset prices have been rising. At the same time, on a global scale, with the major economies gradually getting rid of the impact of the economic crisis, the prices of commodities and means of production are rising, which will certainly be transmitted to the consumption field, and inflation expectations may become a reality in the first half of 20 10. As an important means for enterprises to raise funds, the cost of loans will increase with the increase of loan interest rate. In order to maintain the survival and development of enterprises, enterprises should make rational use of financial leverage to cope with the complex and changeable domestic and international economic environment. Debt financing refers to enterprises raising funds by issuing bonds, borrowing from banks and financing leasing. Enterprises use borrowed funds to finance, and repay the principal and interest at maturity. Compared with equity financing, they have to bear greater risks, but the cost of capital is lower. Given the total capital and its structure, the debt interest that the enterprise needs to pay from the income before interest and tax is fixed. When the income before interest and tax increases, the financial expenses borne by each yuan of earnings will be relatively reduced, thus bringing more earnings to ordinary shareholders; On the contrary, it will greatly reduce the common stock surplus. This is the financial leverage effect of debt financing. This leverage comes from the financing of enterprises, which has nothing to do with investment activities and will not change because of leverage.

With the change of internal and external environment, the financial leverage level of enterprises should also change dynamically. In fact, under the new situation, the financial lever to promote the sustainable development of enterprises may be transformed into an obstacle to the development of enterprises. Similarly, the financial leverage that was not conducive to the development of enterprises may also be transformed into a factor to promote the development of enterprises. The dual role of changeable economic environment and financial leverage requires enterprises to maintain flexible capital structure with strong adjustment ability in order to maintain their own market competitiveness. To this end, enterprise decision makers should do the following three things.

First of all, scientifically predict the changes of internal and external environmental factors that may affect financial leverage in the future, and formulate corresponding countermeasures for enterprises on this basis.

From the external environment of enterprises, because the main factor affecting the effectiveness of financial leverage is the proportion of debt interest expenses to enterprise profits, the interest rate of financial market directly affects the debt interest expenses of enterprises in debt financing, and its change is bound to have a certain impact on the choice of financial leverage level of enterprises. Enterprises should pay close attention to and scientifically predict the speed of inflation and the change of interest rate in financial market, judge whether the country will adjust the interest rate of bank deposits in the near future, and adjust the utilization level of financial leverage in time according to the forecast.

From the internal environment of enterprises, enterprises in the process of rapid development can use financial leverage to expand the scale of enterprises, establish their own dominant position in industry competition and strive for more market share. Specifically, the permanent current assets and some fixed assets of an enterprise are financed by long-term funds, while the other permanent current assets and all short-term current assets are financed by short-term funds. This kind of financing combination has low capital cost and less interest expenditure, which can increase the income of enterprises. On the other hand, if the expected rate of return on total assets is less than the expected rate of return on liabilities, debt capital should be reduced or the financing capacity of equity capital should be increased.

Secondly, try to take financing measures to increase the flexibility of enterprise capital structure, such as issuing corporate bonds, joint ventures, equity transfer, property rights transactions, and introducing venture capital. At present, enterprises with positive financial leverage can use option financing tools, such as convertible bonds. When the enterprise develops well and the market price exceeds the conversion price, investors will choose to convert debt into equity. In this way, the proportion of debt capital in the capital structure will be reduced, and the financial risks of enterprises will be reduced, so that enterprises can put more funds into investment projects with good benefits and strive for more return on investment, thus promoting the operation of enterprises to embark on a virtuous circle. However, it must be noted that the enterprise planning to issue convertible bonds should adapt its issuance scale to the optimization of its capital structure, and the design of the internal terms of the bonds should match the capital structure of the enterprise.

Third, because enterprises generally need to use a certain amount of assets as collateral when borrowing from banks, enterprises should consider their own development strategies and selectively increase the scale of assets that can be used as collateral for debts, such as real estate of enterprises such as land, houses and buildings. This can not only meet the needs of further expansion of enterprises, but also use the previously reserved fixed assets to borrow from banks in the case of increasing debt capital in the future.