Wednesday, July 28, 2010

Purpose of Higher Leverage

What is the purpose of higher leverage?

There are many important reasons why a company might make use of high leverage in its borrowing practices. One reason is that higher leverage allows a company to expand without requiring additional stockholder investments but also will make repayment to creditors less certain.

It is important to check a company's financial statements with financial ratios to ensure that they will be able to meet future liabilities.

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