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NPP

4.3

LEVERAGE ANALYSIS / brdaoO EZm{b{gg

Q.39. Write a short note on Leverage. / brdaoO na g§{já {Q>ßnUr {b{IE&

Introduction n[aM`
Financial management is concerned with \$m`ZopÝe`c _¡ZoO_|Q> {H$gr H$ånZr _| \$m`Z|g g§~§Yr
the managerial decisions that result in the ac- à~ÝYH$s` {ZU©`m| go h¡ {Oggo \§$S²>g H$s àm{ßV Ed§ {~OZog
quisition of funds and their effective utiliza-
_| CgH$m à^mdr T>§J go Cn`moJ hmo gHo$Ÿ& \$m`ZopÝe`c
tion in the business. The financial manager is
_¡ZoO_|Q> H$mo Z {g\©$ Hw$b Amdí`H$ \§$S> H$s am{e H$m
required to estimate the total requirement of
funds and make use of sources of financing such AZw_mZ H$aZm hmoVm h¡ ~pëH$ CgHo$ òmoVm| H$m Cn`moJ
funds. These sources may be broadly classified H$aHo$ am{e g§J«hrV H$aZm ^r hmoVm h¡Ÿ& `o òmoV _w»`V… Xmo
into two categories: lo{U`m| _| {d^m{OV {H$E Om gH$Vo h¢…
(i) Those which carry a fixed rate of return (i) {OgHo$ [aQ>Z© H$m aoQ> {ZpíMV hmoVm h¡ Ed§;
and;
(ii) Those on which the returns vary. (ii) {Og na [aQ>Z© n[ad{V©V hmoVm h¡Ÿ&
Since debts involve the payment of inter- My§{H$ S>oãQ> na MwH$mE OmZo dmbo ã`mO H$s am{e EH$
est at a fixed rate, the return to the ordinary {ZpíMV Xa na AmYm[aV hmoVr h¡ Bg{bE {H$gr H$ånZr H$s
shareholders is affected by the magnitude of H¡${nQ>b ñQ´>ŠMa _| S>oãQ> H$s am{e H$s _mÌm H$m grYm à^md
debt in the capital structure of the firm. Am°{S>©Zar eo`ahmoëS>a H$mo {_bZo dmbo [aQ>Z© na n‹S>Vm h¡Ÿ&

Meaning of Leverage brdaoO H$m AW©
The employment of an asset or a source of \$_© _| {H$gr {\$ŠñS> AgoQ²>g `m \§$S²>g Ho$ gmog© H$m
funds for which the firm has to pay a fixed cost {Zdoe H$aZm {OgHo$ ~Xbo \$_© H$mo EH$ {ZpíMV am{e H$m
or fixed return may be termed as ‘leverage’. ^wJVmZ H$aZm n‹S>Vm h¡, Cgo "brdaoO" H$hVo h¢Ÿ&
The higher the leverage, higher the profits brdaoO {OVZm A{YH$ hmoJm bm^ CVZm A{YH$ hmoJm
and vice-versa. VWm BgH$m {dnarV hmoVm h¡&
The term ‘Leverage’ is made of ‘Lever’ "brdaoO" eãX "brda' go ~Zm h¡ Omo ^mar _erZm| `m
which indicates the means of lifting heavy ^mar gm_mZm| H$mo EH$ ñWmZ go Xygao ñWmZ na {IgH$mZo `m bo
objects. Leverage allows us to accomplish OmZo _| Cn`moJ {H$`m OmVm h¡Ÿ& crdaoO go h_ Eogo H$m`© ^r
certain things which are otherwise not
H$a gH$Vo h¢ Omo AÝ`Wm g§^d Zht h¡Ÿ& "brdaoO' H$s `h
possible. The concept of leverage is valid in
business also. In financial management, the AdYmaUm {~OZog _| ^r bmJy hmoVr h¡Ÿ& \$m`ZopÝe`c _¡ZoO_|Q>
_| "brdaoO' eãX H$m Cn`moJ {H$gr ì`mdgm{`H$ g§ñWm H$s
term ‘leverage’ is used to describe the firm’s
ability to use fixed cost assets or funds to ñWm`r bmJVm| H$mo dhZ H$aZo H$s j_Vm Ho$ {bE {H$`m OmVm h¡
increase the return to its owners. Omo ì`dgm` Ho$ ñdm_r H$m [aQ>Z© ~‹T>mZo _| ghm`H$ hmoVm h¡Ÿ&

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