Companies resort to investments to grow from an economic perspective, but this implies the disbursement of large amounts of money, which sometimes is not available, so they must resort to external financing, which generates financial expenses, in addition to the responsibility of payment to third parties.
In this sense, managers must verify their level of financial leverage to determine their debt possibilities. Financial leverage is related to a company's capacity to assume financial commitments with third parties and the cost implications for the company.
In this regard, Rubio and Salazar (2013) point out that financial leverage is the effect that indebtedness has on the profitability of equity. The variation is more than proportional to that produced in the profitability of investments..
It can be said then that the necessary condition for the amplifying leverage to occur is that the profitability of the investments is greater than the interest rate corresponding to the debts, then we speak of positive leverage.
To achieve the above, it is of utmost importance the business strategies that are taken, these are actions that the management of the company proposes to achieve objectives and goals, in the case that these are of a financial nature, leverage becomes the precise tool to determine objectives and goals.
This is relevant to any type of company, regardless of the industry or type of activity it carries out, since the market may experience a complex economic and financial context, due to the situation of the countries, which may reflect the effects of the crisis in the business sector in question
In such a way that it is important that companies employ strategies to be able to maintain their inventories or the production of the same, because the rapid increase in prices causes a mismatch in relation to the replenishment of inventory, because sometimes the price to replenish the spare part is higher than the sale made.
Bibliographical Reference:
Rubio, C. and Salazar, Sh. (2013) Economic-financial diagnosis for the management of indebtedness risk in Empresa Láctea S.A.
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