CRITICS REGARDING THE USE OF DEGREE OF FINANCIAL LEVERAGE IN THE EVALUATION OF COMPANY'S FINANCIAL RISK
CRITICS REGARDING THE USE OF DEGREE OF FINANCIAL LEVERAGE IN THE EVALUATION OF COMPANY'S FINANCIAL RISK

Summary/Abstract: Financial risk has been traditionally evaluated using two kinds of tools: degree of financial leverage and the break-even point. In this paper, we carried a study regarding the limits and the terms of using the degree of financial leverage when evaluating the financial risk. In this aim, we first proposed a new set of indicators that could be used to assess this type of risk. In order to demonstrate the relevance of new measures proposed, we carried out a survey on several companies listed on Bucharest Stock Exchange. The period of analysis was 2007 - 2010. For the companies selected, we calculated both the traditional measures and the new set proposed. The results showed the disadvantages and the terms of using the traditional measures when evaluating the financial risk. We also found out that some of the measures proposed within this paper provide better results in this respect.

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