√ Definition of Levearge, Types, Purpose and Benefits
Definition of Levearge, Types, Purpose and Benefits - On this occasion Regarding Knowledge will discuss Levearge. In this discussion, we explain the meaning of leverge, its purpose, types and benefits briefly and clearly. For more details, see the following article.
Definition of Levearge, Types, Purpose and Benefits
For companies that have fixed operating costs and fixed capital costs, the company uses leverage. The use of leverage can cause burdens and risks for the company, if the company's condition worsens. In addition to the company having to pay increasing interest charges, there is a high possibility that the company will receive penalties from third parties.
Understanding Levearge
Leverage is a use of assets or also a source of funds by companies that have fixed costs (fixed expenses) in order to increase shareholder profits the. Companies that will use leverage have the aim of ensuring that the profits they obtain are greater than fixed costs (fixed expenses).
Leverage is the level of a company's ability to use assets or funds that have a fixed charge (debt or special shares) in order to realize a company goal of maximizing the owner's wealth company. Apart from that, leverage can also be interpreted as the use of assets or funds in which to be able to use these funds the company must cover fixed costs or fixed expenses.
Understanding Leverage According to Experts
To understand more about leverage, we can refer to several opinions expressed by experts, including the following:
According to Sartono
According to Sartono, the definition of leverage is the use of assets or sources of funds by companies that have fixed costs (fixed expenses) with the aim of increasing potential profits shareholders.
According to Irawati
According to Irawati, the definition of leverage is a policy that will be implemented by a company in terms of investing funds. Where you can get a source of funds accompanied by fixed expenses/costs that must be borne by the company.
According to Fakhrudin
According to Fakhrudin, the definition of leverage is the amount of debt that will be used to finance or buy company assets. Companies that have debt greater than equity are said to be companies with a very high level of leverage.
According to Sjahrial
According to Sjahrial, the definition of leverage is the use of assets and sources of funds by a company that has fixed costs (fixed expenses). Funds that will come from loans because they have interest are a fixed expense with the aim of increasing the potential profit of the holder share.
Types of Leverage
There are several types of leverage, of which there are 3 types, namely Operating Leverage, Financial Leverage and Combination Leverage. Below is an explanation of the various types of leverage, namely as follows:
Operating Leverage
Operating leverage is how much a company will use fixed operational expenses (Hanafi, 2004:327). According to Syamsuddin (2001:107), operating leverage is the ability of a company to use fixed operations costs to be able to increase the influence of changes in sales volume on earnings before interest and taxes (EBIT).
This operating leverage will arise as a result of the fixed expenses that will be borne in the company's operations. Companies that have fixed operating costs or fixed capital costs will use leverage. By using operating leverage, the company hopes that changes in sales will result in a larger change in earnings before interest or tax.
These operational fixed expenses will usually also come from depreciation costs, production and marketing costs which will have a fixed nature, for example employee salaries. The opposite is an operational variable load. An example of variable costs is labor costs that will be paid based on the products that have been produced.
Financial Leverage
Financial leverage is the use of a source of funds that has a fixed burden with the assumption that it will provide additional profits which will be greater than the fixed expenses so that it will also be able to increase the profits that will be available to shareholders (Sartono, 2008:263).
The company's policy of obtaining loan capital from outside will be reviewed from the field of financial management. This is an application of Financial Leverage in which the company finances its activities using loan capital. And will bear a fixed expense which can have the aim of increasing earnings per share.
Financial Leverage arises because there are financial obligations which also have a fixed nature (fixed financial charges) which must be paid by the company. These fixed financial obligations cannot change with changes in the EBIT level or it also has to be paid regardless of whatever level of EBIT has been or has been achieved company.
Combined Leverage
Combination leverage occurs if a company has either operating or financial leverage leverage in its efforts to increase profits for ordinary shareholders (Sartono, 2008:267).
Combined leverage is an influence that changes in sales have on changes in profit after tax to be able to measure directly. The effect of changes in sales on changes in shareholder profits and losses with Degree of Combined Leverage (DCL). So it is defined as the percentage change in earnings per share as a result of the percentage change in units to be sold.
Purpose and Benefits of Leverage Ratio
According to Kasmir, below are the objectives of companies using leverage ratios, which include:
- To be able to find out the company's position regarding obligations to other parties.
- To obtain the company's ability to fulfill its permanent obligations.
- To achieve a balance between asset value, especially fixed assets, and capital.
- To find out how much of the company's assets are financed by debt.
- To find out how much influence the company's debt has on asset management.
That's the explanation about Definition of Levearge, Experts, Types, Purpose, Benefits. Hopefully it can be useful and broaden your insight. Thank You
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