Financial leverage?

It relates to how your business is funded ie. how much of it is funded by your own money and how much of it is funded by other people’s money.

There is always a price for money. Money is a precious resource. Price of money comes in different terms ie. interest, dividend etc.

While you may be willing to forgo your dividends for the monies that you have invested in the business, other investors and lenders of monies to the business would want their “pound of flesh”. These groups of people would want to be paid.

Thus the risk.
In any economic downturn and consequent negative impact on your topline ie. sales revenue, it would severely reduce your ability to pay these investors.

As accountants to be and in practice, we have to ensure a capital structure that is vigorous enough to protect the company’s existence and also to meet the investors’ aspirations.

I will continue to review the specifics of the article here in AWE.

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