Home  Journals  Economic Analysis: Theory and Practice  27(378) - 2014 July

Parametric modeling of the effects of financial leverage

Available online: 11 July 2014

Subject Heading: Financial analysis

JEL Classification: 

Pages: 27-34

The article provides the output expressions to return on equity capital in the absence of and borrowed current assets. The authors propose a modified model of financial leverage effect, taking into account the reduction of profitability of assets through loans. The paper defines the limit of financial leverage effect. On the basis of an adjusted financial leverage effect model, the authors are proposing a method of parametric modeling of possible boundaries of the return on equity.

Keywords: parametrical modeling, financial leverage, limit, effect, base return on assets, return on equity

References:

1. Bobkova N.G. Imeet li znachenie struktura kapitala? Biznes-obrazovanie v ekonomike znanii [Does the capital structure matter? Proc. Int. Sci. Conf. Business-education in knowledge economy]. Irkutsk, Baikal International Business School Publ., 2010.
2. Brigham U., Erhardt M. Finansovyi menedzhment [Financial management]. St. Petersburg, Piter Publ., 2007, 960 p.
3. Lyubushin N.P. Ekonomicheskii analiz [Economic analysis]. Moscow, YUNITI-DANA Publ., 2008.
4. Modigliani F., Miller M.H. The Cost of Capital, Corporation Finance and the Theory of Investment. American Economic Review, 1958, June, pp. 261–297.

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ISSN 2311-8725 (Online)
ISSN 2073-039X (Print)

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