Financial Analysis of Debt Influence on Profitability and Value of Enterprise

Finanční analýza vlivu dluhu na rentabilitu a hodnotu podniku

Jaroslava Holečková

Český finanční a účetní časopis, 2009, vol. 2009, issue 3, 37-48

Abstract: This paper focused on detailed relationship between profitability, financial performance and financing by debt. The structure of capital resources, the level of debt, in particular, and the costs of individual financial resources represent the most important factors influencing profitability and firm´s value belong to the most significant steps in financial decision making. The task for financial analysis is to explore if debt was profitable or not, using following criteria of advantageous use of debt (equity multiplier, interest margin, financial leverage index, degree of financial leverage). The level of debt is considered the main factor of financial risk and financial stability. Profitability of invested capital (return on investments and return of equity) must be always considered against the financial risk. Shareholders, managers, creditors are interested in satisfactory financial performance together with adequate financial situation that will enable to achieve lasting development of the company.

Keywords: Debt Financing; Profitability; Financial Risk; Dluhové financování; Výnosnost; Finanční riziko (search for similar items in EconPapers)
JEL-codes: G30 (search for similar items in EconPapers)
Date: 2009
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DOI: 10.18267/j.cfuc.35

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