UNDERSTANDING LEVERAGE: A DUAL APPROACH TO MEASURING RISK AND PROFITABILITY IN FIRMS

Аннотация

This study investigates the multifaceted nature of leverage in corporate finance, distinguishing between its static and dynamic forms. Building on Dudycz's theoretical framework, the paper explores how operating and financial leverage impact a firm's earnings and return on equity, depending on varying levels of sales and debt. The analysis emphasizes the importance of clear measurement definitions, supported by visual models. The findings highlight that while leverage can significantly enhance profitability, it also magnifies risk. The study recommends precision in leverage assessment to inform strategicfinancial decisions better. Key words: Leverage, Operating leverage(OL), Financial leverage (FL), Total leverage (TL), EBIT, ROE, Staticapproach, Dynamicapproach.