What does financing leverage mean？

When you read relevant financial materials, you usually see the word financing leverage. What does financing leverage mean? In fact, financial leverage is also called financing leverage or financing leverage. It refers to the phenomenon that the change in profit per share of common stock is larger than the change in profit before interest and tax due to the existence of fixed debt interest and preferred stock dividend. This article will give you a detailed introduction to the concept of financing leverage and the formula for calculating the financing leverage ratio.

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What does financing leverage mean?

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Financing leverage is based on corporate mergers and acquisitions. It refers to that when a company intends to acquire other companies for structural adjustment and asset reorganization, it uses the assets of the acquired company and its future profitability as collateral to raise some funds from banks for acquisitions. a financial management activity.

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Leveraged financing is a very flexible financing method. Different operating techniques can be used to design different financial models. Common LBO financing models mainly include the following:

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A typical leveraged buyout financing model. That is, the financing enterprise adopts the ordinary leveraged buyout method, mainly through borrowing to raise funds, in order to achieve the purpose of acquiring the target enterprise. Under this model, financing companies generally expect to obtain a higher annual return on investment through several years of investment.

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Leveraged buyout capital structure adjustment model. It is a financial model in which the financing company evaluates its own capital value, analyzes its debt capacity, and then adopts a typical leveraged buyout financing model to repurchase part of the company's shares.

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Leveraged buyout holding model. That is, companies do not consider themselves as LBO targets, but appear as LBO companies with multiple capital structures.

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Calculation formula of financing leverage ratio

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In spot silver trading, the so-called leverage is the multiple of capital magnification achieved by using the margin trading mechanism. The greater the leverage, the greater the magnification of the capital, and the higher the capital utilization rate. The smaller the leverage, the smaller the magnification of the capital. Each product of the specification has a margin ratio. Divide 1 by the margin ratio to obtain the leverage ratio. For example, what I do is Xinhua Oil, the margin ratio is 3% or 5%, and the leverage is 1/3%=33.3 times, 1/5%=20 times. Now the state stipulates that it is illegal to exceed 50 times, and this should be noted.

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Leverage ratio = spot price of underlying stock ÷ (warrant price x share conversion ratio) Delta value: The so-called delta value refers to "when the stock price changes by one unit, the expected warrant price will change accordingly." It is a numerical value generated by mathematical differential calculation through a valuation model such as the B-S model, and it also changes at any time.

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Regarding the issue of financing leverage, this paper focuses on the concept of financing leverage and the calculation method of financing leverage. It can be seen that financing leverage is a very important concept in financial investment. Investors must really understand what it means and how to calculate it, so that they can adjust their investment transactions more flexibly.