Leverage Financial Relations, ROE and EPS
UNDERSTANDING
Cash flow (cash flow) is "a number of cash coming out and as a result of corporate activity, in other words is the cash flow of the inflow in the company and cash flow out of the enterprise and how the balance of each period.
The main thing that should always be considered in managing the underlying cash flows is to understand clearly the functions of funds / money we have, we save or invest. In a simple function which is to be divided into three
Company in its activities require adequate funding so that operations run smoothly. Companies that lack of funds will be seeking funds to cover the difference will these funds. These funds can be obtained by entering the new capital of the company owner or in any way make loans to parties outside the company. If the company made loans to parties outside the company's debt will arise as a consequence of these loans and means the company has financial leverage. The greater the debt hence its financial leverage will also increase. Means the risk that companies will be even greater because these debts.
Financing with debt or financial leverage has three important implications, namely:
1. Obtain funds through debt makes shareholders can maintain control over the company with a limited investment.
2. Creditors look at equity or owner of the funds deposited to provide margin budgeting, so that if the shareholder gives only a small part of total financing, the risk of most existing companies on the creditors.
3. If firms earn greater returns on investment financed by borrowing funds at the interest payment of an appeal, then the owner will return on capital greater than or leveraged.
Financial levarage considered profitable if the profit on the gain is greater than the fixed costs arising from the use of debt. Financial leverage is considered harmful if the income earned is less than the fixed costs arising from the use of these debts.
The company expects to invest a maximum return from these investments. The use of debt as an additional investment to fund the company's assets is expected to increase profits which will be obtained by owners of companies rather than using only its own capital of more limited. If assets are well managed company and the maximum profit will be maximum at all, because the company's assets are used by companies for corporate operational activities which aim to generate profits.
Increased use of debt by the company it will result in the company assets also increased. With the increase in assets of the company is expected profit generated by these companies will also increase. If the company's profit increase then return on equity (ROE) will also be increased. In addition, also financial leverage also increased due to greater use of debt by the company. Return on equty (ROE) is the return to equity shareholders by the measure of profit earned on its book value. This is very important concerns to investors and the creditors as a basis for a decision. If you want to invest in a company's investors or potential investors need information about the company's ability to generate profits in view of the retun received by investors and see how the company is managing its assets. The management company that does financial leverage would be viewed by investors and potential investors in managing these funds. If these funds can be managed well it will be able to increase profits is obtained and the mean return that is produced will also rise. This will be viewed well by the lenders to determine policy in distributing the funds.
Besides return on equity (ROE), earnings also have an impact on earnings per share (EPS), ie when its profits go up then the earnings per share (EPS) will also rise. Earning per share (EPS) is the result which was obtained shareholders for each share outstanding. Earning per share (EPS) is of interest to the prospective investors for the prospective investors can find out how much profit can be gained over the ownership of shares in that company. The company's management uses financial leverage in order to increase profits , with increasing the earning per share earnings (EPS) will also rise. If the management can properly manage its financial leverage to achieve the expected level of income so that the return earned per share to be increased then it will become a material for making the decision for potential investors willing to invest in these companies.
From the above explanation, it can be taken with the conclusion that the financial leverage and financial leverage ROE have a relationship with the EPS. Increased use of debt undertaken by the company resulted in the total assets of the company to be increased. Corporate assets used by the company for its operating costs with the aim of generating profits. So with the increase in expected profit company assets generated by these companies will also increase. With increased profits mean return or return on equity (ROE) will also be increased, besides it also financial leverage also increased due to greater use of debt undertaken by the company. Conversely, if the use made by the company's debt, the total assets of the company fell into fall. With decreasing the company's assets, the profit generated by these companies will also decrease. With decreasing profits mean return or return on equity (ROE) will also decrease, beside financial leverage is also decreasing because of declining use of debt undertaken by the company.
EPS as well as the ROE, which is when the use of debt undertaken by the company increased the total assets of the company resulted in a rise. Corporate assets used by companies for corporate operational activities which aim to generate profits. And with the increase in assets of the company expected profit generated by these companies will also increase. With the increase in profits means earnings per share (EPS) will also be increased, besides it also financial leverage also increased due to greater use of debt undertaken by the company. Conversely, if the use of debt undertaken by the company dropped the company's total assets decrease. By decreasing the company's assets, the profit generated by these companies will also decrease. With declining profits means earnings per share (EPS) will also decrease, beside financial leverage is also decreasing because of declining use of debt undertaken by the company.
Cash flow (cash flow) is "a number of cash coming out and as a result of corporate activity, in other words is the cash flow of the inflow in the company and cash flow out of the enterprise and how the balance of each period.
The main thing that should always be considered in managing the underlying cash flows is to understand clearly the functions of funds / money we have, we save or invest. In a simple function which is to be divided into three
Company in its activities require adequate funding so that operations run smoothly. Companies that lack of funds will be seeking funds to cover the difference will these funds. These funds can be obtained by entering the new capital of the company owner or in any way make loans to parties outside the company. If the company made loans to parties outside the company's debt will arise as a consequence of these loans and means the company has financial leverage. The greater the debt hence its financial leverage will also increase. Means the risk that companies will be even greater because these debts.
Financing with debt or financial leverage has three important implications, namely:
1. Obtain funds through debt makes shareholders can maintain control over the company with a limited investment.
2. Creditors look at equity or owner of the funds deposited to provide margin budgeting, so that if the shareholder gives only a small part of total financing, the risk of most existing companies on the creditors.
3. If firms earn greater returns on investment financed by borrowing funds at the interest payment of an appeal, then the owner will return on capital greater than or leveraged.
Financial levarage considered profitable if the profit on the gain is greater than the fixed costs arising from the use of debt. Financial leverage is considered harmful if the income earned is less than the fixed costs arising from the use of these debts.
The company expects to invest a maximum return from these investments. The use of debt as an additional investment to fund the company's assets is expected to increase profits which will be obtained by owners of companies rather than using only its own capital of more limited. If assets are well managed company and the maximum profit will be maximum at all, because the company's assets are used by companies for corporate operational activities which aim to generate profits.
Increased use of debt by the company it will result in the company assets also increased. With the increase in assets of the company is expected profit generated by these companies will also increase. If the company's profit increase then return on equity (ROE) will also be increased. In addition, also financial leverage also increased due to greater use of debt by the company. Return on equty (ROE) is the return to equity shareholders by the measure of profit earned on its book value. This is very important concerns to investors and the creditors as a basis for a decision. If you want to invest in a company's investors or potential investors need information about the company's ability to generate profits in view of the retun received by investors and see how the company is managing its assets. The management company that does financial leverage would be viewed by investors and potential investors in managing these funds. If these funds can be managed well it will be able to increase profits is obtained and the mean return that is produced will also rise. This will be viewed well by the lenders to determine policy in distributing the funds.
Besides return on equity (ROE), earnings also have an impact on earnings per share (EPS), ie when its profits go up then the earnings per share (EPS) will also rise. Earning per share (EPS) is the result which was obtained shareholders for each share outstanding. Earning per share (EPS) is of interest to the prospective investors for the prospective investors can find out how much profit can be gained over the ownership of shares in that company. The company's management uses financial leverage in order to increase profits , with increasing the earning per share earnings (EPS) will also rise. If the management can properly manage its financial leverage to achieve the expected level of income so that the return earned per share to be increased then it will become a material for making the decision for potential investors willing to invest in these companies.
From the above explanation, it can be taken with the conclusion that the financial leverage and financial leverage ROE have a relationship with the EPS. Increased use of debt undertaken by the company resulted in the total assets of the company to be increased. Corporate assets used by the company for its operating costs with the aim of generating profits. So with the increase in expected profit company assets generated by these companies will also increase. With increased profits mean return or return on equity (ROE) will also be increased, besides it also financial leverage also increased due to greater use of debt undertaken by the company. Conversely, if the use made by the company's debt, the total assets of the company fell into fall. With decreasing the company's assets, the profit generated by these companies will also decrease. With decreasing profits mean return or return on equity (ROE) will also decrease, beside financial leverage is also decreasing because of declining use of debt undertaken by the company.
EPS as well as the ROE, which is when the use of debt undertaken by the company increased the total assets of the company resulted in a rise. Corporate assets used by companies for corporate operational activities which aim to generate profits. And with the increase in assets of the company expected profit generated by these companies will also increase. With the increase in profits means earnings per share (EPS) will also be increased, besides it also financial leverage also increased due to greater use of debt undertaken by the company. Conversely, if the use of debt undertaken by the company dropped the company's total assets decrease. By decreasing the company's assets, the profit generated by these companies will also decrease. With declining profits means earnings per share (EPS) will also decrease, beside financial leverage is also decreasing because of declining use of debt undertaken by the company.
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