ANALYSIS OF THE INFLUENCE OF A COMPANY’S INDEBTEDNESS ON THE FINANCIAL RISK

Lapadusi Mihaela Loredana and Florea Ianc Maria Mirabela
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Lapadusi Mihaela Loredana: Faculty of Economics and Business Administration, “Constantin Brancusi” University of Tg-Jiu, Romania
Florea Ianc Maria Mirabela: Faculty of Economics and Business Administration, “Constantin Brancusi” University of Tg-Jiu, Romania

Annals - Economy Series, 2015, vol. Special, 193-200

Abstract: Awareness of indebtedness and financial risk represents a great importance not only for the management of the company but also for creditors, investors, institutional investors, rating agencies, etc. An indebtedness analysis implies its effect on financial risk through financial lever coefficient or the financial lever. A financial lever is a notion originating in physics and it is the force that is applied in order to give a boost of a process or a phenomenon. However, in economics that notion was adapted and can be regarded as the strenght of different financial categories, financial instruments used in order to give a boost in a certain sense to various economic processes or activities in order to achieve the established objectives. More specifically we can say that the financial lever or the financial leverage expresses the impact of the financial structure over the company’s profitability. The research aims at analysing indebtedness and its influence over the financial risk and all the aspects underlined in the present article will prove the assumption that a company's performance and its capacity to produce profit depends mainly on the management and the use of financial resources. The purpose of present article is to highlight the impact of indebtedness over financial risk through the financial lever. The main objectives of the article set out to achieve this purpose are: the theoretical approach of a company's overall indebtedness, the analysis of the financial levers, and the analysis of the positive and negative leverage effects.

Keywords: indebtedness; financial risk; financial lever; financial return; rentability (search for similar items in EconPapers)
Date: 2015
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