Leverage and Financing Decision –An Empirical Analysis

Abstract

In the process of selection of a target debt-equity mix, a company analyses a number of factors, one of such factors is the consideration of leverage. The management employs this tool, more often than not, to increase the company’s return on net worth and more so when it is impossible to improve operating efficiency of the company and increasing the return on total investment. The study is divided into two parts- conceptual framework and case study. In the present article an endeavor has been made to through some light on the business risk, financial risk, financial break-even point and total risk of Hindustan Construction Company Limited by means of computing the degree of association between the various leverage ratios with the well-known profitability indicator viz. return on net worth (RONW), and statistical test viz.‘t’ test has been used to test the significance of the results of the empirical study. Ultimately, the article concludes with some valid recommendations which deserve the attention of the concerned company under study and government.