Companies use financial leverage to hope will increase profits for shareholders. If used appropriately, the company can use the fixed-cost capital by issuing bonds and preferred shares to make a profit greater than the costs charged for financing of fixed income. Part of the remaining profits will belong to common shareholders. This will be made clearer when we analyze the relationship between profit before tax-interest (EBIT) and profit on the shares (EPS). At the same time we analyze the influence of the financial lever to ROE.
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