Different Faces of Leverage

27 Pages Posted: 11 Dec 2006 Last revised: 19 May 2020

See all articles by Tadeusz Dudycz

Tadeusz Dudycz

Wroclaw University of Science and Technology, Faculty of Management

Date Written: November 27, 2006

Abstract

As Neveu writes - the concept of leverage is very general, in literature it is defined and measured in different ways. In the article we systematize the definitions and the manners of measurement of the three kinds of leverages, distinguishing two approaches: static and dynamic. We prove, that these approaches can send contradictory information and that is why when we use the expression "high leverage" and "low leverage" we should give the manner of its measurement. In the article we also show, that the very popular parameters DOL, DFL and DTL are in relation with the margin of safety and they contribute nothing new apart from terminological commotion.

Keywords: financial leverage, operating leverage, total leverage, degree of operating leverage, degree of financial leverage, degree of total leverage

JEL Classification: G30, G31, G33, M21

Suggested Citation

Dudycz, Tadeusz, Different Faces of Leverage (November 27, 2006). Available at SSRN: https://ssrn.com/abstract=950554 or http://dx.doi.org/10.2139/ssrn.950554

Tadeusz Dudycz (Contact Author)

Wroclaw University of Science and Technology, Faculty of Management ( email )

ul. Smoluchowskiego 25
Wroclaw, 50-372
Poland

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