1.
FINANCIAL MANAGEMENT
IMPACT OF LEVERAGE ON
A FIRM
SUBMITTEDTO:
MS. PREETIYADAV
SUBMITTED BY:
Danish Chandra
II-L,VSLLS

2.
 Leverage is an investment strategy of using borrowed money—
specifically, the use of various financial instruments or borrowed
capital—to increase the potential return of an investment.
 Leverage results from using borrowed capital as a funding source
when investing to expand the firm's asset base and generate returns
on risk capital.
 Leverage can also refer to the amount of debt a firm uses to finance
assets.

3.
Types of leverage
 Operating leverage- Operating leverage is a cost-accounting formula that
measures the degree to which a firm or project can increase operating income by
increasing revenue. A business that generates sales with a high gross margin and
low variable costs has high operating leverage.
 Financial leverage- Financial leverage is the use of debt to buy more assets.
Leverage is employed to increase the return on equity. However, an excessive
amount of financial leverage increases the risk of failure, since it becomes more
difficult to repay debt.
 Combined leverage- Combined leverage is a leverage which refers to high
profits due to fixed costs. It includes fixed operating expenses with fixed financial
expenses. It indicates leverage benefits and risks which are in fixed quantity.
Competitive firms choose high level of degree of combined leverage whereas
conservative firms choose lower level of degree of combined leverage. Degree of
combined leverage indicates benefits and risks involved in this particular leverage.
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4.
Scope of the study- This case study is concerned with analysis of leverage position of
the company whirlpool.
Objectives of the study- The objective of this case study is to know the overall
operating efficiency and performance of the firm through financial analysis and to
measure the growth of the company.
This study with the financial aspects of the company whirpool. The study period is from
2006 to 2016.
CASE STUDY ON WHIRLPOOL

5.
Whirlpool India ltd. (Whirlpool)
The whirlpool corporation is an American multinational manufacturer and
marketer of home appliances, headquartered in benton charter township,
michigan, united states.[2] the fortune 500 company has annual revenue of
approximately $21 billion, 78,000 employees, and more than 70
manufacturing and technology research centers around the the company
markets its namesake flagship brand whirlpool, alongside other brands as well
including maytag, kitchenaid, jennair, amana, gladiator garage works, inglis,
estate, brastemp, bauknecht, hotpoint, ignis, indesit, and consul. Their website
also mentions diqua, affresh, acros, and yummly brands.

6.
PROFITABILITYAND NET WORTH

7.
CAPITALSTRUCTUREANALYSIS

8.
Conclusion
1. Whirlpool is an almost a zero-debt company and in 2016 D/E ratio is 0.08 or 7.1%
of Capital Employed.
2. Being a zero debt company, whirlpool does not get any tax shield. But considering
its huge retained earnings and 85% promoter’s funds in overall shareholder’s fund,
not leveraging its assets is more profitable option for the company.
3. Net sales and assets of the company have increased a lot in recent years.
4. Although there no long term debts, but it has taken some loans for operational
expenditures which are very less as compared to the PBIT of the company which is
indicated by the huge interest coverage ratio.
5. To maximize the wealth of shareholders, leverage plays a positive role when rate
of return is higher than the fixed rate of interest which is paid on loans borrowed.

9.
 The long-term debt is positively related with the firm’s gross profitability. This
can be explained by the aggressive output and investment strategies adopted by
the firms with higher long-term debts, combined with their technology up
gradation efforts.
 The structure of the debt of the firms is therefore found to have an important
bearing on the firm’s choice of product market related strategies and thereby
influencing the performance of the firms as well.
 Whirlpool Ltd. is also using the financial leverage effectively thereby
increasing the earning of the shareholders. Finally, it is concluded that the
company should improve its debt equity ratio in order to have better trading on
equity position and reframe its capital structure for further development.

10.
THANK YOU
ANY QUESTIONS?