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Financial Management — Business Studies STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceBusiness StudiesFinancial Management1 Mark
Question
What do you mean by Financial Leverage?
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Answer

The inclusion of the fixed cost capital (debt capital and preference share capital) along with equity share capital in the capital structure is called financial leverage. With the increase of financial leverage the ratio of cheap capital in the total capital of the company increases. Consequently, the total capital cost decreases and the company is in a profitable situation.

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