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Financial Leverage Formula

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Financial Leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. Check FAQs

FL = \frac{TD}{TSE}

FL - Financial Leverage?TD - Total Debt?TSE - Total Shareholders' Equity?

Financial Leverage Example

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Here is how the Financial Leverage equation looks like with Values.

Here is how the Financial Leverage equation looks like with Units.

Here is how the Financial Leverage equation looks like.

2.1E+7 = \frac{2.5E+9}{120}

2.1E+7 = \frac{2.5E+9}{120}

2.1E+7 = \frac{2.5E+9}{120}

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Financial Leverage Solution

Follow our step by step solution on how to calculate Financial Leverage?

FIRST Step Consider the formula

FL = \frac{TD}{TSE}

Next Step Substitute values of Variables

∴

FL = \frac{2.5E+9}{120}

Next Step Prepare to Evaluate

∴

FL = \frac{2.5E+9}{120}

Next Step Evaluate

∴

FL = 20833333.3333333

LAST Step Rounding Answer

∴

FL = 2.1E+7

Financial Leverage Formula Elements

Variables

Financial Leverage

Financial Leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing.

Symbol: FL

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Financial Leverage

Total Debt

Total Debt is the net debt of a company minus cash on hand.

Symbol: TD

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Total Debt

Total Shareholders' Equity

Total Shareholders' equity is equal to a firm's total assets minus its total liabilities and is one of the most common metrics used by analysts to determine the financial health of a company.

Symbol: TSE

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Total Shareholders' Equity

Other formulas in Leverage Ratios category

Go Degree of Operating Leverage

DOL = \frac{%ΔEBIT}{%ΔSales}

Go Degree of Financial Leverage

DFL = \frac{EBIT}{EBIT - I}

Go Degree of Combined Leverage

DCL = DOL \cdot DFL

How to Evaluate Financial Leverage?

Financial Leverage evaluator uses Financial Leverage = Total Debt/Total Shareholders' Equity to evaluate the Financial Leverage, Financial Leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. Financial Leverage is denoted by FL symbol.

How to evaluate Financial Leverage using this online evaluator? To use this online evaluator for Financial Leverage, enter Total Debt (TD) & Total Shareholders' Equity (TSE) and hit the calculate button.

FAQs on Financial Leverage

What is the formula to find Financial Leverage?

The formula of Financial Leverage is expressed as Financial Leverage = Total Debt/Total Shareholders' Equity. Here is an example- 2.1E+7 = 2500000000/120.

How to calculate Financial Leverage?

With Total Debt (TD) & Total Shareholders' Equity (TSE) we can find Financial Leverage using the formula - Financial Leverage = Total Debt/Total Shareholders' Equity.

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Financial Leverage Formula

Financial Leverage Example

Financial Leverage Solution

Financial Leverage Formula Elements

Other formulas in Leverage Ratios category

How to Evaluate Financial Leverage?

FAQs on Financial Leverage

Variable Name