Financial leverage

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Financial leverage is the extent to which fixed income securities (debt and preferred stock) are used in a firm's capital structure. If a high percentage of a firm's capital structure is in the form of debt and preferred stock, then the firm is said to have a high degree of financial leverage.


Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

Financial leverage. The extent to which fixed income securities (debt and preferred stock) are used in a firm's capital structure. If a high percentage of a firm's capital structure is in the form of debt and preferred stock, then the firm is said to have a high degree of financial leverage.

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