Case Study Of Y Company Using Financial Leverage

With the rapid development of the global economy and the acceleration of product renewal,higher and stricter requirements are put forward for the operation and development of enterprises.If enterprises do not try to keep up with the development of the times,they will inevitably be eliminated by the times.Only by continuous development can they remain invincible.As far as enterprises are concerned,capital is the blood and guarantee for their healthy development.However,a company’s own capital is limited,so it is indisputable to ensure the adequacy of enterprise funds through financing.However,financial leverage is favored by some enterprises because of its advantages of interest,expense,tax front and high income brought by leverage,so many enterprises prefer debt financing for external financing.This also leads to a generally high level of financial leverage,and the negative effects of financial crisis caused by financial leverage are easily ignored by enterprises.Domestic and foreign theoretical studies on financial leverage and its effects are relatively mature,but there are few case studies.With the promulgation of China’s de-leverage policy and the promotion of supply-side structural reform,the negative effects of financial leverage in some enterprises are beginning to emerge.How to make rational use of financial leverage,maximize the positive effect of financial leverage and reduce the negative effect of financial leverage is an important means and content of the optimization of enterprise capital structure and financial management.Through the combination of theory and practical cases,the author analyzed the specific cases of enterprises using financial leverage.According to the specific situation of Y company,this paper analyses the rationality of the use of Y company’s financial leverage through its financial situation and capital structure,such as the expanding scale of liabilities,the decline of operating profits and the shortage of cash flow;and through the index of Y company’s financial leverage coefficient,total assets pre-tax profit rate,debt interest rate,pre-tax profit growth rate and post-tax profit growth rate at the same time.The comparative analysis shows that the negative effect of Y company’s financial leverage is more obvious;and then the negative effect of Y company’s financial leverage on the company is analyzed in terms of increasing the possibility of debt overdue,decreasing the profitability of assets,increasing agency costs,decreasing the refinancing ability and decreasing the earnings per share,etc.Through the analysis of the causes of the negative effect of Y company’s financial leverage,such as unreasonable financing structure and unreasonable profitability,etc.We hope to reduce the negative effect of financial leverage by optimizing the financing structure,improving the profitability of the company,strengthening the control of agency cost,enhancing the flexibility of financial leverage and strengthening risk awareness.Through the analysis of specific cases,we hope to make a supplement to the study of financial leverage,and provide some reference for large and medium-sized manufacturing enterprises in the same situation as Y Company.Let more companies understand the importance of rational use of financial leverage,pay attention to the negative effects of financial leverage;give some suggestions and measures to reduce the negative effects of financial leverage for some debt financing enterprises in China,so that enterprises can make better use of financial leverage.It is hoped that it will play a certain role in promoting the development of enterprises and capital markets in China.