How do we finance our business?
Financial decisions are critical for a company. It is important for a company to create value for its owners by earning a high return and by controlling its risk. Higher financial leverage can result in both high returns and high risk. Consequently, managers must examine the tradeoff and choose an amount of financial leverage that is appropriate for their company. That amount will be different for different companies. When is it appropriate for a company to have a large amount of financial leverage? What kinds of companies are likely to have high financial leverage? Why?