The Analysis Of The Financial Leverage Effect In H Company

The Electric industry is the infrastructure industry to maintain the sustained and rapid development of China's national economy,which closely relates to people's lives and is the premise for other industries to survival and development.Since 2002,although the country has determined markets-oriented electric industry reform,the governnent still holds the authority of setting price in the electricity on-grid,besides the developmental pattern of"planned electricity,market coal" has not changed.Influenced by the industry's characteristics,the debt level of power generation enterprises is generally high.And the power companies'need for investment only could be met through a large number of debts.However,indebted companies will inevitably produce financial leverage effect.Positive effect will increase shareholders' returns and improve enterprises' values,as result that is called the positive effect of financial leverage.Negative effect will produce financial crisis,and even lead to bankruptcy and liquidation,so it is known as negative effect of financial leverage.The higher financial leverage and lower profitability of power companies make it possible to exert negative effect of financial leverage than other industries.Therefore,this study about power companies' financial leverage effect is conducive to guiding power companies to make better on using financial leverage and playing a positive effect,meanwhile it could help power companies avoiding the negative effect of financial leverage and improving the efficiency that power generation enterprises achieve their financial objectives.This thesis chooses H Company as the research object,and uses literature research,case study and other methods,as well as relevant principles about financial leverage effect to study the results of H Company,s financial leverage.Firstly,this thesis clarifies the background and significance of this study,the research status at home and abroad,the research contents and methods,and the application value of the article.Secondly,this thesis introduces three theories:financial leverage,financial leverage effect and capital structure.Thirdly,it analyzes the current situation of financial leverage effect of H Company,and finds out the negative effect of financial leverage based on the background of industry development and relevant data.Then analyzing four problems of H Company,such as low profitability,poor solvency,high financial risk and cash flow shortage.Fourthly,for further study,it is found that the causes of these problems are the excessive proportion of operating costs,the excessive level of interest-bearing liabilities,the excessive level of financial leverage and the irrational capital plan.Finally,four effective measures are put forward to solve the problems,such as strengthening cost control,reducing the level of interest-bearing liabilities,reducing the level of financial leverage and improving the efficiency of capital budget implementation.