Optimal Leverage Ratio In Company Management And Application Practices

Abstract

The article analyzes the approaches to the definition and assessment of financial leverage presented in domestic and foreign economic literature. The existing economic models, developed on the basis of the relationship between the interest coverage ratio and the level of financial leverage, allowing to determine the acceptable level of financial risk for an enterprise, as well as a general simplified scheme for analyzing financial leverage on the example of a small business entity. We also consider the difference in the approaches to using the leverage ratio, based on the goals of managing the company's profit or income. As well as the economic essence of such indicators as the volume and composition of equity and borrowed capital. The article considers the dual nature of economic events when attracting external financing, which can be considered on the basis of financial leverage. The methods of calculating the optimal leverage ratio and creating an equilibrium in the overall capital structure under various conditions, such as the conditions of a pandemic, are analyzed. The influence of various internal and external factors in making management decisions related to the determination of the optimal financial leverage ratio is disclosed. The article also discusses the sources of information used in the calculation of financial leverage that are most often used in practice in domestic companies.

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This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

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Publisher

European Publisher

First Online

25.09.2021

Doi

10.15405/epsbs.2021.09.02.115

Online ISSN

2357-1330