In this video, learn how to use the debt ratio to quantify the level of a company's financial leverage.
- The benefit of financial leverage is that using … borrowed money allows a company to be larger … with the same level of shareholder investment. … More borrowed money means more assets. … More assets means more sales. … More sales means more profits. … Again, all with the same initial shareholder investment. … So more leverage can mean a higher return on equity. … This is great for the owners of the company. … But too much leverage means that the possibility … of loan default and possible bankruptcy … is uncomfortably close. … This is not great for the company's banks. … Imagine three different scenarios involving a company … with $100 in assets. … Scenario one, low leverage. … $99 in owner investment and $1 in borrowed money. … Scenario two, middle leverage. … $50 in owner investment and $50 in borrowed money. … Scenario three, high leverage. … $1 in owner investment and $99 in borrowed money. … Now, let's say that something bad happens to the assets … and they decline in value from 100 to $60. …
- Accounting basics
- Reviewing the balance sheet and income statement
- Credits, debits, and journal entries
- Making financial statements
- Issues in financial accounting
- Revenue recognition
- Deferring taxes
- Analyzing financial statements
Skill Level Beginner
Accounting Foundations: Internal Controlswith Jim Stice1h 29m Intermediate
Cost Accounting: Analyzing Product Profitabilitywith Rudolph Rosenberg56m 49s Intermediate
Why financial accounting?1m 13s
1. Accounting Basics
The accounting equation3m 37s
2. The Financial Statement
3. The Mechanics of Accounting
4. Current Issues in Financial Accounting
5. Financial Statement Analysis
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