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Ciritics Regariing The Use Of Degree Of Fianancial Leverage In The Evaluation Of Company'S Financial Risk

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  • Lect. Daniel Circiumani Ph. D.

    ( University of Craiova Faculty of Economics and Business Administration Craiova, Romania)

Abstract

Financial risk has been traditionally evaluated using two kinds of tools: degree of financial leverage and the break-even point In this paper. we carried a study regarding the limits and the terms of using the degree of financial leverage when evaluating the financial risk. In this aim, we first proposed a new set of indicators that could be used to assess this type of risk. In order to demonstrate the relevance of new measures proposed, we carried out a survw on several companies listed on Bucharest Stock Exchange. The period of analysis was 2007 - 2010. For the companies selected, we calculated both the traditional measures and the new setproposed. The results showed the disadvanta9es and the terms of usin the traditional measures when evaluating the financial risk We also foun out that some of the measures proposed within this paper provide better results in this respect.

Suggested Citation

  • Lect. Daniel Circiumani Ph. D., 2011. "Ciritics Regariing The Use Of Degree Of Fianancial Leverage In The Evaluation Of Company'S Financial Risk," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 4(39), pages 49-60, May.
    • Handle: RePEc:aio:aucsse:v:1:y:2011:i:12:p:49-60
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    More about this item

    Keywords

    financial risk; degree of financial leverage; coefficient of sensitivity; financial expenses; operating profit; net income;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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