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When is financial leverage considered favourable?

Open uri20170510 32134 ughyv5?1494421703 gunesh asked over 2 years ago

Hi I am CA student. I am having doubt about financial management. Can I know, When is financial leverage considered favourable?

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Pankaj answered over 2 years ago

First , Debt is considered a more effective source of positive financial leverage than preferred stock because the interest on debt is tax deductible but dividend on preferred stock is not. Second, Financial Leverage is desirable when rate or return on investment using these amounts of money have been obtained from bank loan is more than the bank interests or dividends parables

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 ranjan bhutani answered over 2 years ago

**When is financial leverage considered favourable?** First , Debt is considered a more effective source of positive financial leverage than preferred stock because the interest on debt is tax deductible but dividend on preferred stock is not. Second, Financial Leverage is desirable when rate or return on investment using these amounts of money have been obtained from bank loan is more than the bank interests or dividends parables.

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