MGMT 3320 Chapter Notes - Chapter 5: Root Mean Square, Capital Structure, Opportunity Cost
11 Mar 2017
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Business risk: based on the nature of the business operations together with the mix of labour and capital assets. Financial risk: based on the nature of capital employed to fund the rm (debt and/or share equity: by employing more capital assets and/or more debt, the rm increases its leverage and its risk. Operating leverage: re ects the extent to which capital assets and xed costs are utilized in the business rm: effects xed charges, in uences mix of plant and equipment (capital assets) Financial leverage: re ects amount of debt used in the capital structure (debt/equity mix) of the rm: affects interest charges, how operations is tone nanced (debt/equity) Operating leverage: degree to which capital assets and associated xed costs are utilized by the rm, rm"s operational costs may be xed, variable, or semi-variable. Break-even analysis: break even point is where revenue covers costs.
