Financial leverage can be appropriately described as the extent to which a business or investor is using the borrowed money. Business companies with high leverage are considered to be at risk of bankruptcy if, in case, they are not able to repay the debts, it might lead to difficulties in getting new lenders in future. It is not that financial leverage is always bad. However, it can lead to an increased shareholders’ return on investment. Also, very often, there are tax advantages related with borrowing, also known as leverage. So, in the rapid changing environment of corporate sector, which poses special problem for financial managers that what would be the best combination for capital structures and where to investment for generating the future cash flow for the company growth. Keeping in view we will focus on what factor/ variable of financial leverage do effects the investment (corporate) decisions of Pakistan market especially in petroleum and fertilizers sectors. Aim of the Research Papers:
There are many variables of leverage that have an effective impact on the investment decisions. But in this research paper we will only focus on the few of those factors. The ratio between the market value and replacement value of the same physical asset ‘q’ having an impact on investment decision. The ratio of EBIT (earnings before interest and income tax) to the total capital invested in operating assets has an impact on investment decision. Which mean that the firms earn more profit on the money it has borrowed than the interest paid for the use of that borrowed money. Impact of cash flow on the investment. In other words at what extent does internal rate of return and net present value have an impact on investment. Tangibility is the sum of all your tangible assets less any liabilities you may have. In the financial markets, tangible net worth represents the amount of physical assets a company has net of its liabilities, its impact on the corporate...
References: Dr. Hashemi .S.A, Zadeh. F. Z. K( 2012).The impact of financial leverage operating cash flow and size of company on the dividend policy (case study of Iran),. INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
Bae S C (2009).On the interactions of financingand investment decisions Evidence from Chinese industrial companies, Department of Finance, College of Business Administration, Bowling Green State University, Bowling Green, Ohio, USA
Modigliani, F.; Miller, M. (1958). "The Cost of Capital, Corporation Finance and the Theory of Investment". American Economic Review 48 (3): 261–297.
Alkhatib.k. (2012). The Determinants of Leverage of Listed Companies, International Journal of Business and Social Science.
Bruinshoofd.A. (2005). Corporate Investment and Financing Constraints:Connections with Cash Management, De Nederlandsche Bank NV
Please join StudyMode to read the full document