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THE CONCEPT OF RISK
Introduction
In business leverage means using fixed costs @ fixed
expenses to increase profitability.
Leverage deals with the different types of financing and
indicates the amount of debt used to support the firm’s
resources and operations.
This chapter deals with the alternative means of
influencing earnings and risk through changes in the
financial mix.
Generally increase in leverage would result in increased
return and risk.
We will introduce one of the tools that financial
managers use to plan the firm’s financial mix by taking
into account the operating aspects.
The tool is the break even analysis; we will cover relation
to the degree of operating leverage (DOL).
