CIRITICS REGARIING THE USE OF DEGREE OF FIANANCIAL LEVERAGE IN THE EVALUATION OF COMPANY'S FINANCIAL RISK

Lect. Daniel Circiumani Ph. D.
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Lect. Daniel Circiumani Ph. D.: University of Craiova Faculty of Economics and Business Administration Craiova, Romania

Annals of University of Craiova - Economic Sciences Series, 2011, vol. 4, issue 39, 49-60

Abstract: Financial risk has been traditionally evaluated using two kinds of tools: degree of financial leverage and the break-even point In this paper. we carried a study regarding the limits and the terms of using the degree of financial leverage when evaluating the financial risk. In this aim, we first proposed a new set of indicators that could be used to assess this type of risk. In order to demonstrate the relevance of new measures proposed, we carried out a survw on several companies listed on Bucharest Stock Exchange. The period of analysis was 2007 - 2010. For the companies selected, we calculated both the traditional measures and the new setproposed. The results showed the disadvanta9es and the terms of usin the traditional measures when evaluating the financial risk We also foun out that some of the measures proposed within this paper provide better results in this respect.

Keywords: financial risk; degree of financial leverage; coefficient of sensitivity; financial expenses; operating profit; net income (search for similar items in EconPapers)
JEL-codes: G32 G33 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:aio:aucsse:v:1:y:2011:i:12:p:49-60

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