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Financial leverage measures firms exposure to the financial risk Explores the effect of financial leverage on shareholders return

and market capitalization Seven major automotive public companies were undertaken Cluster approach was used to create favorable conditions and encourages linked organizations Simple linear regression analysis was carried out

A.

Financial leverage: Debt amount used in the capital structure of the firm Impact on returns lower the amount borrowed, lower the interest, lower will be the profit Greater the amount borrowed, lower the interest, greater will be the profit Fixed service obligation

Financial leverage measures firms exposure to the financial risk Degree of financial leverage indicates the percentage change in EPS resulting from a unit percentage change in EBIT Financial leverage ratio is calculated by dividing assets by shareholder equity Potential of increasing the shareholders wealth

B. Share Holders Return: Result of the efficiency of all commercial, operational and financial activity of the enterprise Compare the performance of different companies stocks and shares over time

SR = (Price(end) Price(begin) x No. of Shares

C. Market Capitalization: Aggregate value of a company Calculated by multiplying the number of shares outstanding by their current price per share Temporary metric True value of the company (profits, product positioning, balance sheet, etc) Low market capitalization

With risky debt outstanding, a firm's investment policy is not fixed Shareholders fail to exercise the investment option A small change in the level of sales, will have dramatic effect on EPS

High-growth firms have lower financial leverage Combine operating and financial leverages to see the effect of total leverage on EPS The variables sales, interest, cash flow, asset structure, firms size, retained earnings, EBIT and intrinsic value of shares influence financial leverage

To study the influence of financial leverage on shareholders return and market capitalization of automotive cluster companies of Pithampur

Ho1: There is no significant influence of financial leverage on shareholders return. Ho2: There is no significant influence of financial leverage on market capitalization.

Empirical nature study The population of the study includes the automotive cluster companies of Pithampur, (M.P.), India. The study covered five years time period Secondary data was used

Dependent Variable: Shareholders return and mark capitalization Independent Variables: Financial leverage Linear simple regression had been used as a tool to analyze the data

The results of the study show that financial leverage has no influence on the shareholders return of levered firms of automotive industry Limitation : The reason might be that these companies had not found cheaper debt capital in huge quantum than equity capital over the period The Financial leverage is more beneficial at the growth phase of the companies

The study concludes that there might be other non quantitative factors which may lead to nullify the impact of financial leverage on shareholders return like recession, saturation of auto industry, competition and government policy