16.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson...

16.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 16Chapter 16

Operating and Operating and Financial LeverageFinancial Leverage



1. Define operating and financial leverage and identify causes of both.

2. Calculate a firm’s operating break-even (quantity) point and break-even (sales) point .

3. Define, calculate, and interpret a firm's degree of operating, financial, and total leverage.

4. Understand EBIT-EPS break-even, or indifference, analysis, and construct and interpret an EBIT-EPS chart.

5. Define, discuss, and quantify “total firm risk” and its two components, “business risk” and “financial risk.”

6. Understand what is involved in determining the appropriate amount of financial leverage for a firm.

After Studying Chapter 16, After Studying Chapter 16, you should be able to:you should be able to:


• Operating Leverage

• Financial Leverage

• Total Leverage

• Cash-Flow Ability to Service Debt

• Other Methods of Analysis

• Combination of Methods



• One potential “effect” caused by the presence of operating leverage is that a change in the volume of sales results in a “more than proportional” change in operating profit (or loss).

Operating Leverage Operating Leverage – The use of – The use of fixed operating costs by the firm.fixed operating costs by the firm.

Operating LeverageOperating Leverage


Firm F Firm V Firm Firm F Firm V Firm 2F2F

Sales $10 $11 $19.5Operating Costs

Fixed 7 2 14 Variable 2 7 3Operating Profit $$ 11 $ 2$ 2 $ $

2.52.5

FC/total costs 0.78 0.22 0.82 FC/sales 0.70 0.18 0.72

(in thousands)(in thousands)

Impact of Operating Impact of Operating Leverage on ProfitsLeverage on Profits


• Now, subject each firm to a 50% 50% increase in sales increase in sales for next year.

• Which firm do you think will be more “sensitive” “sensitive” to the change in sales (i.e., show the largest percentage changein operating profit, EBIT)?

[ ] Firm FFirm F; [ ] Firm VFirm V; [ ] Firm 2FFirm 2F.



Firm F Firm V Firm Firm F Firm V Firm 2F2F

Sales $15 $16.5 $29.25Operating Costs Fixed 7 2 14 Variable 3 10.5 4.5Operating Profit $$ 55 $ 4 $ 4 $10.75$10.75

PercentagePercentage Change in EBITChange in EBIT* 400% 100% 400% 100% 330%330%

(in thousands)(in thousands)

* (EBITt - EBIT t-1) / EBIT t-1



• Firm F Firm F is the most “sensitive” firm is the most “sensitive” firm – for it,a 50% increase in sales leads to a400% increase in EBIT400% increase in EBIT.

• Our example reveals that it is a mistake to assume that the firm with the largest absolute

• or relative amount of fixed costs automatically shows the most dramatic effects of operating leverage.

• Later, we will come up with an easy way tospot the firm that is most sensitive to the presence of operating leverage.



• When studying operating leverage, “profits” refers to operating profits before taxes (i.e., EBIT) and excludes debt interest and dividend payments.

Break-Even Analysis Break-Even Analysis – A technique for studying the relationship among fixed

costs, variable costs, sales volume, and profitsprofits. Also called cost/volume/profit

analysis (C/V/P) analysis.

Break-Even AnalysisBreak-Even Analysis


QUANTITY PRODUCED AND SOLDQUANTITY PRODUCED AND SOLD

0 1,000 2,000 3,000 4,0004,000 5,000 6,000 7,000

Total RevenuesTotal Revenues

ProfitsProfits

Fixed CostsFixed Costs

Variable CostsVariable CostsLossesLosses

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VE

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($ t

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th

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175175

250

100

50

Total CostsTotal Costs

Break-Even ChartBreak-Even Chart


How to find the quantity break-even point:

EBIT = PP(QQ) – VV(QQ) – FCFC EBIT = QQ(PP – VV) – FCFC

P = Price per unitP = Price per unit V = Variable costs per unitV = Variable costs per unit FC = Fixed costs FC = Fixed costs Q = Quantity (units) Q = Quantity (units)

produced and soldproduced and sold

Break-Even Point Break-Even Point – The sales volume required – The sales volume required so that total revenues and total costs are so that total revenues and total costs are equal; may be in units or in sales dollars.equal; may be in units or in sales dollars.

Break-Even Break-Even (Quantity) Point(Quantity) Point


Breakeven occurs when EBIT = 0

Q Q (PP – VV) – FCFC = EBIT

QQBE BE (PP – VV) – FCFC = 0

QQBE BE (PP – VV) = FCFC

QQBEBE = FCFC / (PP – VV) a.k.a. Unit Contribution Margin

Break-Even Break-Even (Quantity) Point(Quantity) Point


How to find the sales break-even point:

SSBEBE = FCFC + (VCVCBEBE)

SSBEBE = FC FC + (QQBEBE )(VV)

or

SSBEBE**= FCFC / [1 – (VCVC / S) ]

* Refer to text for derivation of the formula

Break-Even (Sales) PointBreak-Even (Sales) Point


Basket Wonders (BW) wants to determine both the quantity and sales quantity and sales

break-even points break-even points when:

• Fixed costs Fixed costs are $100,000$100,000

• Baskets are sold for $43.75$43.75 eacheach

• Variable costs are $18.75 per basket$18.75 per basket

Break-Even Break-Even Point ExamplePoint Example


Breakeven occurs when:

QQBEBE = FCFC / (PP – VV)

QQBEBE = $100,000$100,000 / ($43.75$43.75 – $18.75$18.75)

QQBEBE = 4,000 Units4,000 Units

SSBEBE = (QQBEBE )(VV) + FCFC

SSBEBE = (4,0004,000 )($18.75$18.75) + $100,000$100,000

SSBEBE = $175,000$175,000

Break-Even Point (s)Break-Even Point (s)



0 1,000 2,000 3,000 4,0004,000 5,000 6,000 7,000

Total RevenuesTotal Revenues

ProfitsProfits

Fixed CostsFixed Costs

Variable CostsVariable CostsLossesLosses

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175175

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100

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Total CostsTotal Costs

Break-Even ChartBreak-Even Chart


DOLDOL at Q units of output

(or sales)

Degree of Operating Leverage Degree of Operating Leverage – The percentage change in a firm’s operating profit (EBIT) resulting from a 1 percent

change in output (sales).

=

Percentage change in operating profit (EBIT)

Percentage change in output (or sales)

Degree of Operating Degree of Operating Leverage (DOL)Leverage (DOL)


DOLDOLQ unitsQ units

Calculating the DOL for a single product Calculating the DOL for a single product or a single-product firm.or a single-product firm.

=QQ (PP – VV)

QQ (PP – VV) – FCFC

= QQ

QQ – QQBEBE

Computing the DOLComputing the DOL


DOLDOLS dollars of S dollars of

salessales

Calculating the DOL for a Calculating the DOL for a multiproduct firm.multiproduct firm.

=SS – VCVC

SS – VCVC – FCFC

=EBIT + FCFC

EBIT

Computing the DOLComputing the DOL


Lisa Miller wants to determine the degree degree of operating leverage of operating leverage at sales levels of sales levels of 6,000 and 8,000 units6,000 and 8,000 units. As we did earlier,

we will assume that:




Break-Even Break-Even Point ExamplePoint Example


DOLDOL6,000 units6,000 units

Computation based on the previously Computation based on the previously calculated break-even point of 4,000 unitscalculated break-even point of 4,000 units

=6,0006,000

6,000 6,000 – 4,000 4,000

=

= 33

DOLDOL8,000 units8,000 units

8,0008,0008,000 8,000 – 4,000 4,000

= 22

Computing BW’s DOLComputing BW’s DOL


A 1% increase in sales above the 8,000 A 1% increase in sales above the 8,000 unit level increases EBIT by 2% unit level increases EBIT by 2%

because of the existing operating because of the existing operating leverage of the firm.leverage of the firm.

=DOLDOL8,000 units8,000 units

8,0008,0008,000 8,000 – 4,000 4,000

= 22

Interpretation of the DOLInterpretation of the DOL


2,000 2,000 4,0004,000 6,000 8,000 6,000 8,000

1122334455


00––11––22––33

––44––55

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• DOL is a quantitative measure of the “sensitivity”of a firm’s operating profit to a change in the firm’s sales.

• The closer that a firm operates to its break-even point, the higher is the absolute value of its DOL.

• When comparing firms, the firm with the highest DOL is the firm that will be most “sensitive” to a change in sales.

Key Conclusions to be Drawn from the Key Conclusions to be Drawn from the previous slide and our Discussion of DOLprevious slide and our Discussion of DOL



• DOL is only one component one component of business risk and becomes “active” only in the presence only in the presence of sales and production cost variabilityof sales and production cost variability.

• DOL magnifiesmagnifies the variability of operating profits and, hence, business risk.

Business Risk Business Risk – The inherent uncertainty – The inherent uncertainty in the physical operations of the firm. Its in the physical operations of the firm. Its impact is shown in the variability of the impact is shown in the variability of the

firm’s operating income (EBIT).firm’s operating income (EBIT).

DOL and Business RiskDOL and Business Risk


Use the data in Slide 16–5 and the Use the data in Slide 16–5 and the following formula for following formula for Firm F Firm F ::

DOLDOL = [( = [(EBITEBIT + + FCFC)/)/EBITEBIT]]

=DOLDOL$10,000 sales$10,000 sales

1,000 1,000 ++ 7,0007,0001,0001,000

= 8.08.0

Application of DOL for Application of DOL for Our Three Firm ExampleOur Three Firm Example


Use the data in Slide 16–5 and the Use the data in Slide 16–5 and the following formula for following formula for Firm V Firm V ::



2,000 2,000 ++ 2,0002,0002,0002,000

= 2.02.0

Application of DOL for Application of DOL for Our Three Firm ExampleOur Three Firm Example


Use the data in Slide 16–5 and the Use the data in Slide 16–5 and the following formula for following formula for Firm 2F Firm 2F ::



2,500 2,500 ++ 14,00014,0002,5002,500

= 6.66.6

Application of DOL for Application of DOL for Our Three-Firm ExampleOur Three-Firm Example


The ranked results indicate that the firm most The ranked results indicate that the firm most sensitive to the presence of operating leverage sensitive to the presence of operating leverage

is is Firm FFirm F.

Firm FFirm F DOLDOL = = 8.08.0Firm VFirm V DOLDOL = = 6.66.6Firm 2FFirm 2F DOLDOL = = 2.02.0

Firm FFirm F will expect a will expect a 400% increase in profit400% increase in profit from a from a 50% 50% increase in salesincrease in sales (see Slide 16–7 results). (see Slide 16–7 results).

Application of DOL for Application of DOL for Our Three-Firm ExampleOur Three-Firm Example


• Financial leverage is acquired by choice.

• Used as a means of increasing the return to common shareholders.

Financial Leverage Financial Leverage – The use of – The use of fixed financing costs by the firm. fixed financing costs by the firm. The British expression is The British expression is gearinggearing..

Financial LeverageFinancial Leverage


Calculate EPS EPS for a given level of EBITEBIT at a given financing structure.

EBIT-EPS Break-Even Analysis EBIT-EPS Break-Even Analysis – Analysis – Analysis of the effect of financing alternatives on of the effect of financing alternatives on

earnings per share. The break-even point is earnings per share. The break-even point is the EBIT level where EPS is the same for the EBIT level where EPS is the same for

two (or more) alternatives.two (or more) alternatives.

(EBITEBIT – I) (1 – t) – Pref. Div.

# of Common SharesEPSEPS =

EBIT-EPS Break-Even, EBIT-EPS Break-Even, or Indifference, Analysisor Indifference, Analysis


• Current common equity shares = 50,000Current common equity shares = 50,000• $1 million in new financing of either:$1 million in new financing of either:

• All C.S. sold at $20/share (50,000 shares)• All debt with a coupon rate of 10%• All P.S. with a dividend rate of 9%

• Expected EBIT = $500,000Expected EBIT = $500,000• Income tax rate is 30%Income tax rate is 30%

Basket Wonders Basket Wonders has $2 million in LT has $2 million in LT financing (100% common stock equity).financing (100% common stock equity).

EBIT-EPS ChartEBIT-EPS Chart


EBITEBIT $500,000 $500,000 $150,000$150,000*

Interest 0 0

EBT $500,000 $150,000

Taxes (30% x EBT) 150,000 45,000

EAT $350,000 $105,000

Preferred Dividends 0 0

EACS EACS $350,000 $350,000 $105,000 $105,000# of Shares 100,000 100,000EPSEPS $3.50 $3.50

$1.05$1.05

Common Stock Equity AlternativeCommon Stock Equity Alternative

* A second analysis using $150,000 EBIT rather than the expected EBIT.

EBIT-EPS Calculation with EBIT-EPS Calculation with New Equity FinancingNew Equity Financing


0 100 200 300 400 500 600 7000 100 200 300 400 500 600 700

EBIT ($ thousands)EBIT ($ thousands)

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CommonCommon



EBITEBIT $500,000 $500,000 $150,000$150,000*

Interest 100,000 100,000

EBT $400,000 $ 50,000

Taxes (30% x EBT) 120,000 15,000

EAT $280,000 $ 35,000

Preferred Dividends 0 0

EACS EACS $280,000 $280,000 $ 35,000 $ 35,000# of Shares 50,000 50,000EPSEPS $5.60 $5.60

$0.70$0.70

Long-term Debt AlternativeLong-term Debt Alternative


EBIT-EPS Calculation with EBIT-EPS Calculation with New Debt FinancingNew Debt Financing


0 100 200 300 400 500 600 7000 100 200 300 400 500 600 700


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CommonCommon

DebtDebt

Indifference pointbetween debtdebt and

common stockcommon stockfinancing



EBITEBIT $500,000 $500,000 $150,000$150,000*

Interest 0 0

EBT $500,000 $150,000

Taxes (30% x EBT) 150,000 45,000

EAT $350,000 $105,000

Preferred Dividends 90,000 90,000

EACS EACS $260,000 $260,000 $ 15,000 $ 15,000# of Shares 50,000 50,000EPSEPS $5.20 $5.20

$0.30$0.30

Preferred Stock AlternativePreferred Stock Alternative


EBIT-EPS Calculation with EBIT-EPS Calculation with New Preferred FinancingNew Preferred Financing


0 100 200 300 400 500 600 7000 100 200 300 400 500 600 700


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CommonCommon

DebtDebt

Indifference pointbetween preferred preferred stock stock and common common

stockstock financing

PreferredPreferred



0 100 200 300 400 500 600 7000 100 200 300 400 500 600 700


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CommonCommon

DebtDebt

Lower riskLower risk. Only a smallprobability that EPS willbe less if the debtalternative is chosen.

Pro

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(for th

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What About Risk?What About Risk?


0 100 200 300 400 500 600 7000 100 200 300 400 500 600 700


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DebtDebt

Higher riskHigher risk. A much largerprobability that EPS willbe less if the debtalternative is chosen.

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What About Risk?What About Risk?


DFLDFL at EBIT of

X dollars

Degree of Financial Leverage Degree of Financial Leverage – The percentage change in a firm’s earnings

per share (EPS) resulting from a 1 percent change in operating profit.

=

Percentage change in earnings per share (EPS)

Percentage change in operating profit (EBIT)

Degree of Financial Degree of Financial Leverage (DFL)Leverage (DFL)


DFLDFL EBIT of $X

Calculating the DFLCalculating the DFL

=EBITEBIT

EBIT EBIT – II – [ PDPD / (1 – tt) ]

EBIT EBIT = Earnings before interest and taxes= Earnings before interest and taxesI I = Interest= InterestPD PD = Preferred dividends= Preferred dividendst t = Corporate tax rate= Corporate tax rate

Computing the DFLComputing the DFL


DFLDFL $500,000$500,000

Calculating the DFL for Calculating the DFL for NEWNEW equity equity* alternativealternative

=$500,000$500,000

$500,000 $500,000 – 00 – [00 / (1 – 00)]

* The calculation is based on the expected EBIT

= 1.001.00

What is the DFL for Each What is the DFL for Each of the Financing Choices?of the Financing Choices?


DFLDFL $500,000$500,000

Calculating the DFL for Calculating the DFL for NEWNEW debt debt * alternativealternative

=$500,000$500,000

{{ $500,000 $500,000 – 100,000100,000 – [00 / (1 – 00)] }


= $500,000$500,000 / $400,000

1.251.25=



DFLDFL $500,000$500,000

Calculating the DFL for Calculating the DFL for NEWNEW preferred preferred * alternativealternative

=$500,000$500,000

{{ $500,000 $500,000 – 0 0 – [90,00090,000 / (1 – 0.300.30)] }


= $500,000$500,000 / $371,429

1.351.35=



• Preferred stock Preferred stock financing will lead to the greatest variability in earnings per share based on the DFL.

• This is due to the tax deductibility of interest on debt financing.

DFLDFLEquityEquity = 1.00 = 1.00

DFLDFLDebtDebt = 1.25 = 1.25

DFLDFLPreferredPreferred = = 1.351.35

Which financing method will have

the greatest relative greatest relative variability in EPS?variability in EPS?

Variability of EPSVariability of EPS


• Debt increases the probability of cash insolvency over an all-equity-financed firm. For example, our example firm must have EBIT of at least $100,000 to cover the interest payment.

• Debt also increased the variability in EPS as the DFL increased from 1.00 to 1.25.

Financial Risk Financial Risk – The added variability in – The added variability in earnings per share (EPS) – plus the risk of earnings per share (EPS) – plus the risk of

possible insolvency – that is induced by the possible insolvency – that is induced by the use of financial leverage.use of financial leverage.

Financial RiskFinancial Risk


• CVCVEPSEPS is a measure of relative total firm risktotal firm risk

• CVCVEBITEBIT is a measure of relative business riskbusiness risk

• The difference, CVCVEPSEPS – CV – CVEBITEBIT, is a measure of relative financial riskfinancial risk

Total Firm Risk Total Firm Risk – The variability in earnings per – The variability in earnings per share (EPS). It is the sum of business plus share (EPS). It is the sum of business plus

financial risk.financial risk.

Total firm risk Total firm risk = business risk business risk + financial riskfinancial risk

Total Firm RiskTotal Firm Risk


DTLDTL at Q units (or S dollars) of output (or

sales)

Degree of Total Leverage Degree of Total Leverage – The percentage change in a firm’s earnings

per share (EPS) resulting from a 1 percent change in output (sales).

=

Percentage change in earnings per share (EPS)

Percentage change in output (or sales)

Degree of Total Degree of Total Leverage (DTL)Leverage (DTL)


DTLDTL S dollars

of sales

DTLDTL Q units (or S dollars) Q units (or S dollars) = ( DOL DOL Q units (or S dollars) Q units (or S dollars) ) x ( DFLDFL EBIT of X dollars EBIT of X dollars )

=EBITEBIT + FC

EBIT EBIT – II – [ PDPD / (1 – tt) ]

DTLDTL Q unitsQQ (PP – VV)

QQ (PP – VV) – FC – II – [ PDPD / (1 – tt) ]=

Computing the DTLComputing the DTL


Lisa Miller wants to determine the Degree of Total Leverage Degree of Total Leverage at

EBIT=$500,000. EBIT=$500,000. As we did earlier, we will assume that:




DTL ExampleDTL Example


DTLDTL S dollars

of sales

=$500,000$500,000 + $100,000

$500,000 $500,000 – 00 – [ 00 / (1 – 0.30.3) ]

DTLDTLS dollars S dollars = (DOLDOL S dollars S dollars) x (DFLDFLEBIT of $S EBIT of $S )

DTLDTLS dollars S dollars = (1.2 1.2 ) x ( 1.01.0* ) = 1.201.20

= 1.201.20*Note: No financial leverage.

Computing the DTL Computing the DTL for All-Equity Financingfor All-Equity Financing


DTLDTL S dollars

of sales

=$500,000$500,000 + $100,000

{ $500,000 $500,000 – $100,000$100,000 – [ 00 / (1 – 0.30.3) ] }

DTLDTLS dollars S dollars = (DOLDOL S dollars S dollars) x (DFLDFLEBIT of $S EBIT of $S )

DTLDTLS dollars S dollars = (1.2 1.2 ) x ( 1.251.25* ) = 1.501.50

= 1.501.50*Note: Calculated on Slide 16.44.

Computing the DTL Computing the DTL for Debt Financingfor Debt Financing


Compare the expected EPS to the DTL for the common stock equity financing

approach to the debt financing approach.

FinancingFinancing E(EPS)E(EPS) DTLDTL

EquityEquity $3.50$3.50 1.201.20 DebtDebt $5.60$5.60 1.501.50Greater expected return (higher EPS) comes at the Greater expected return (higher EPS) comes at the

expense of greater potential risk (higher DTL)!expense of greater potential risk (higher DTL)!

Risk versus ReturnRisk versus Return


• Firms must first analyze their expected future expected future cash flows.cash flows.

• The greater greater and more stable more stable the expected future cash flows, the greater the debt the greater the debt capacity.capacity.

• Fixed charges includeFixed charges include: debt principal and interest payments, lease payments, and preferred stock dividends.

Debt Capacity Debt Capacity – The maximum amount of debt – The maximum amount of debt (and other fixed-charge financing) that a firm (and other fixed-charge financing) that a firm

can adequately service.can adequately service.

What is an Appropriate What is an Appropriate Amount of Financial Leverage?Amount of Financial Leverage?


Interest CoverageInterest Coverage

EBITEBITInterest expensesInterest expenses

Interest CoverageInterest Coverage

EBITEBITInterest expensesInterest expenses

Indicates a firm’s ability to cover

interest charges.

Income StatementRatios

Coverage Ratios

A ratio value equal to 1indicates that earnings

are just sufficient tocover interest charges.

Coverage RatiosCoverage RatiosCoverage RatiosCoverage Ratios


Debt-service CoverageDebt-service Coverage

EBITEBIT{ Interest expensesInterest expenses +

[Principal payments / (1-t) Principal payments / (1-t) ] }

Debt-service CoverageDebt-service Coverage

EBITEBIT{ Interest expensesInterest expenses +

[Principal payments / (1-t) Principal payments / (1-t) ] }

Indicates a firm’s ability to cover

interest expenses and principal

payments.

Income StatementRatios

Coverage Ratios

Allows us to examine theability of the firm to meetall of its debt payments.Failure to make principalpayments is also default.

Coverage RatiosCoverage RatiosCoverage RatiosCoverage Ratios


Make an examination of the coverage coverage ratiosratios for Basket Wonders when

EBIT=$500,000. EBIT=$500,000. Compare the equity and the debt financing alternatives.

Assume thatAssume that:• Interest expensesInterest expenses remain at $100,000$100,000

• Principal payments of $100,000Principal payments of $100,000 are made yearly for 10 years

Coverage ExampleCoverage Example


Compare the interest coverage and debt burden ratios for equity and debt financing.

Interest Interest Debt-service Debt-service FinancingFinancing CoverageCoverage Coverage Coverage

EquityEquity Infinite Infinite Infinite Infinite DebtDebt 5.00 5.00 2.50 2.50The firm actually has greater risk than the interest The firm actually has greater risk than the interest

coverage ratio initially suggests.coverage ratio initially suggests.



-250 0 250 500 750 1,000 1,250-250 0 250 500 750 1,000 1,250


Firm B has a much smaller probability

of failing to meet its obligations than Firm A.

Firm BFirm B

Firm AFirm A

Debt-service burdenDebt-service burden= $200,000= $200,000

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• A single ratio value cannot be interpreted identically for all firms as some firms have greater debt capacity.

• Annual financial lease payments should be added to both the numerator and denominator of the debt-service coverage ratio as financial leases are similar to debt.

• A single ratio value cannot be interpreted identically for all firms as some firms have greater debt capacity.

• Annual financial lease payments should be added to both the numerator and denominator of the debt-service coverage ratio as financial leases are similar to debt.

• The debt-service coverage ratio accounts for required annual principal payments.

• The debt-service coverage ratio accounts for required annual principal payments.

Summary of the Coverage Summary of the Coverage Ratio DiscussionRatio DiscussionSummary of the Coverage Summary of the Coverage Ratio DiscussionRatio Discussion


• Often, firms are compared to peer institutions in the same industry.

• Large deviations from norms must be justified.

• For example, an industry’s median debt-to-net-worth ratio might be used as a benchmark for financial leverage comparisons.

Capital Structure Capital Structure – The mix (or proportion) of a – The mix (or proportion) of a firm’s permanent long-term financing firm’s permanent long-term financing

represented by debt, preferred stock, and represented by debt, preferred stock, and common stock equity.common stock equity.

Other Methods of AnalysisOther Methods of Analysis


• Firms may gain insight into the financial markets’ evaluation of their firm by talking with:

• Investment bankers• Institutional investors• Investment analysts• Lenders

Surveying Investment Analysts and LendersSurveying Investment Analysts and Lenders



• Firms must consider the impact of any financing decision on the firm’s security rating(s).

Security RatingsSecurity Ratings


16.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson...

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Transcript of 16.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson...