Financial Leverage - Meaning, Formula, Calculation & Interpretations

This tutorial covers the most important aspects of the Financial Leverage Ratio. You will learn precisely what the Financial Leverage Ratio is, how to calculate it, and how to interpret the findings. Using the Colgate Case Study, we will also go over how to calculate Financial Leverage in Excel.
You can download the Colgate Financial Leverage template from this link - https://www.wallstreetmojo.com/ratio-...

What is Financial Leverage?
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The financial leverage ratio is used to determine the impact of debt on a company's total profitability. A high ratio indicates that the fixed costs of running the firm are high, while a low ratio indicates that the fixed costs of running the business are low.

Formula
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Financial leverage Formula = % change in Net Income / % change in EBIT

Interpretation
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- The more debt a company has, the greater its financial leverage.
- Data from the last five to ten years should be used to determine financial leverage.
For more details, you can refer to our article - https://www.wallstreetmojo.com/financ...

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