Revista de Ciencias Civiles y Jurídicas

Abstracto

Impact of Leverage on Risk of the Companies

Md. Juman Hussan

In modern competitive business era, the ability to increase return of the firm is mostly depends on efficient use of leverage in the capital structure. Leverage can be defined as a long term debt financing that improves the permanent financial performance as well as the success of the organization. It also explained as the use borrowed funds to establish investment and return on that investment but it is more risky if they cannot be able to generate higher rate of return in compare with cost of capital. For this reason the determination of the proportion of debt and equity is one of the most essential decisions that the organization faces, and any variability in leverage can affect a company’s financial capacity, risk, return, investment, strategic decision and the wealth maximization of organization.