top of page
  • Writer's pictureACC.PRO VIETNAM

How do you understand financial leverage?

According to Warren, leverage is the use of debt to increase a company's profits. The company borrowed 100 million USD with 7% interest and put money into business, making a profit of 12%. This means the company is earning 5% in excess of its cost of capital, resulting in a profit of $ 5m which helps to increase profits and return on equity.

The problem is that leverage is that it can help the company seem to gain a certain competitive advantage while

The reality is just using some

big debt.

Assuming the economy slipped, the company no longer made a profit of 12% but 4%, and now in the short term it appears that the loan is a goose that lays golden eggs but in the end it is not so.

Therefore, in assessing the quality and sustainability of a company's competitive advantage, Warren learned how to prevent businesses from using more debt to make a profit.

Source: Warren Buffett and the interpretation of financial Statements

11 views0 comments

Recent Posts

See All

Warren Buffett - Sự Tinh Tế Trong Việc Đánh Giá Công Ty Warren Buffett, một trong những nhà đầu tư và doanh nhân vĩ đại nhất thế kỷ 20 và 21, đã luôn được biết đến với sự tinh tế và khả năng đánh giá


Post: Blog2_Post
bottom of page