Leveraged Finance (Definition and Meaning) | Examples

We discuss the types of leveraged finance product and its impact on equity returns along with practical examples in this video on Leveraged Finance.

Till the end and if you are new to this channel then you can subscribe us by we talk about leveraged leverages risk risk means debt so this doesn’t mean basically when you finance you leverage so what leveraged finance is all about discuss is what is the leveraged finance see leveraged finance is described as debt instead of equity or cash so higher debt means higher

Financial obligation repayment and corporates have to fulfill their obligation irrespective of the impacts the cash flows and the net profit of the company and may lead to hands of the shareholders so higher the financial fixed cost that is what we are profit after tax for a given change in the effort earning before interest and enhance some financial ratios of the company

Like our roe return on equity finance examples let’s take a basic example to understand the concept of here is you buy a company for let’s say 100 million you buy a company for 100 you can buy the company 400 million in cash and you your analysis shows that and thereby you’re you’re making a handsome return of 2x because from $100 calculate your ir are somewhere between in

15% closely around or 14% because right in year 1 let’s say you receive nothing zero same with year 2,3 rnd the 4th year and in the final exit stage you get $200 so our return calculate ir a– over ir r just try and values over here so it’s 15% so you see second scenario scenario number 2 now over here let’s say you take 50% in scenario and assume that the deal is financed

By 5% cash in 50% here we will assume that the total payment that the total payment of 5 well as principal payments repayment so at the end of the 5th year or 5 company at 200 million the net amount that you may make is 200 million minus to be closely closely to because it’s gonna be 50 debt and yeah so it’s gonna know in order to go for leverage finance the predictable

Cash flows are very companies are usually mature business that has pros is through one themselves lf using high financial leverage in the capital structural company into the that adequate cash from its operating activities right then it might default you know it will further dissolve the financial liquidity of the company in financial solvency before these stakeholders the

Bankruptcy of the scenario and the macro economic factors will also make this substantial impact like the recession in an economic will cut down the operation of the defaults and repayment of loans will have and it will start there were many of the financial crisis and many of them declared as insolvent right we have finance in investment banking well leveraged finance is

One of the lands to provide leveraged loans for taking strategic decisions like department is also responsible for planning managing structuring and forms and the forms the aggressively financed their customized project with their returns what are the leveraged finance products i’ll quickly run you then there is a high-yield bonds you can buy bonds then you have mezzanine it

Is a short way of a know enhancing the companies with which our urgent need the short term financing and the long term financing and it is mostly used by so based on this let me make my conclusions while analyzing a company leverage to evaluate its returns okay in risk appetite and also estimate the projected future cash flows and earning directly related to the financial

Risk beta cost of equity and which can be for measuring the present value of the company so using too much leverage managing the most effectively so the amount of differencing leverage is the amount of the operating leverage it is driven by the prevalent business of the leverage in its capital structure as a part of the risk management trust on the solvency of the company

However the business with the means that financial leverage than a business that does not have any such characteristic so liked the video if you think that you know if you have enjoyed and learned channel for all the latest updates thank you everyone

Transcribed from video
Leveraged Finance (Definition and Meaning) | Examples By WallStreetMojo