Corporate governance and Leverage: Difference between pages

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1.
1. <br />
Debt divided by Debt plus Equity = D / (D + E).<br />
<br />
<b>Example</b><br />
If the amounts of debt and equity were equal then leverage under this definition would be calculated as:<br />
1 / (1 + 1) = 50%.<br />
<br />
2. <br />
The term 'leverage' is also used in a broader sense to refer to the amount of debt in a firm's financial structure.<br />
Used in this broader sense, 'leverage' means very much the same as 'gearing'. <br />
However, leverage and gearing are normally quantified by different calculations.<br />
<br />
3. <br />
To increase the level of gearing in an operational or financial structure.  The intention of leveraging is to improve expected net results.  <br />
A consequence of leveraging is normally to increase financial risk.<br />
Many financial disasters have been a consequence of leveraging up excessively in this way in earlier periods.
<br />


In the commercial context, the framework that provides guidance on corporate strategy including assessing risk, ensures effective monitoring of management by the board of directors and makes certain the board is accountable to the company and the shareholders.


 
== See also ==
2.
* [[Debt]]
 
* [[Deleverage]]
Comparable frameworks in non-commercial organisations. In the non-commercial context the term 'governance' (without the 'corporate' part) is more common.
* [[Gearing]]
* [[Leverage ratio]]




== See also ==
===Other links===
* [[Board of directors]]
[http://www.treasurers.org/node/8012 Masterclass: Measuring financial risk, The Treasurer, July 2012]
* [[Corporate social responsibility ]]
* [[ESG investment]]
* [[Governance]]
* [[Kay Review]]
* [[UK Corporate Governance Code]]
* [[Ethics]]


[[Category:Corporate_Strategy]]
[[Category:Corporate_finance]]

Revision as of 12:12, 29 May 2015

1.
Debt divided by Debt plus Equity = D / (D + E).

Example
If the amounts of debt and equity were equal then leverage under this definition would be calculated as:
1 / (1 + 1) = 50%.

2.
The term 'leverage' is also used in a broader sense to refer to the amount of debt in a firm's financial structure.
Used in this broader sense, 'leverage' means very much the same as 'gearing'.
However, leverage and gearing are normally quantified by different calculations.

3.
To increase the level of gearing in an operational or financial structure. The intention of leveraging is to improve expected net results.
A consequence of leveraging is normally to increase financial risk.
Many financial disasters have been a consequence of leveraging up excessively in this way in earlier periods.


See also


Other links

Masterclass: Measuring financial risk, The Treasurer, July 2012

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