Week 4 Discussion Questions Essay Example | Topics and Well Written Essays - 750 words

Week 4 Discussion Questions - Essay Example , an investment banker would prove to be of great support as he/she will guide the organization through the process and will recommend whether going public is in interest of the organization or not. The investment banker will be involved in investigating the organization in order to know its strengths, risks involved and overall business procedures in order to assist for going public. This research will accommodate with enough knowledge about whether going public will be advantageous for the organization or not. Financial leverage is there when the organization obtains loans or borrowings on the basis of its assets and intends that a greater rate of return will be there as compared to the interest rate. As far as operating leverage is concerned, it is the consideration of the degree of the fixed and variable costs involved in a business. Operating leverage is the measure of the rate of fixed operating costs of the organization while financial leverage is the measure of the rate of loan that an organization takes against its rate of assets. The risks involved in having an excessive amount of financial leverage in an organization are that the profitability of the organization and the return on equity of the organization lessen. This situation arises when the organization’s return on assets (ROA) is unable to enhance as compared to the interest that is inserted on loan taken for the organization. EBIT-EPS analysis can be defined as a pragmatic instrument with the help of which, a financial manager is able to investigate various substituted financial plans in terms of their effect on EPS (Earnings per Share) over a range of EBIT (Earnings before Interests and Taxes) levels. EBIT-EPS analysis is simply an analysis to calculate earnings per share at various levels of sales of earnings before interest and taxes. Into the EBIT-EPS analysis, the risk is handled quite ignored. With this analysis, the basic motive is to enhance the earnings per share; due to this fact,