THE DEVELOPMENT OF SCIENTIFIC APPROACHES TO MNE FINANCIAL LEVERAGE ISSUE

Abstract

Abstract. The economic content and meaning of financial leverage is explored, existing approaches
to its identification are defined and analyzed. The relation between financial leverage
and corporate capital structure is discovered. Financial leverage is considered as an economic
effect arising as a result of using debt financing with fixed interest in corporate capital structure.
It brings about the change in respective corporate financial and economic ratios at higher
rates thaт it would appear if only shareholders equity without any debt were used. The range
of core corporate financial and economic ratios that are considered in terms of positive or negative
influence of financial leverage are defined. They include operational income, market capitalization,
return on equity, earnings per share and others. The positive effect arises when
corporate income exceeds the cost of debt financing. It is achieved mostly when the operational
profit reaches certain level. In case when operational profit is relatively low, the effect can be
missing.
Key words: financial leverage, corporate capital structure, operating leverage, fixed costs,
operating income, earnings per share.