Transcription of Financial Statement Analysis of Leverage and How It ...
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Financial Statement Analysis of Leverage and How It ...
Review of Accounting Studies, 8, 531 560, 2003#2003 Kluwer Academic Publishers. Manufactured in The Statement Analysis of Leverage and How ItInforms About Profitability and Price-to-Book RatiosDORON School of Business, Columbia University, 3022 Broadway, Uris Hall 604, New York, NY 10027 STEPHEN H. School of Business, Columbia University, 3022 Broadway, Uris Hall 612, New York, NY paper presents a Financial Statement Analysis that distinguishes Leverage that arises infinancing activities from Leverage that arises in operations. The Analysis yields two leveraging equations,one for borrowing to finance operations and one for borrowing in the course of operations. Theseleveraging equations describe how the two types of Leverage affect book rates of return on equity.
FINANCIAL STATEMENT ANALYSIS OF LEVERAGE 533. Its net indebtedness is its net position in bonds. Indeed a firm may be a net creditor (with more financial assets than financial liabilities) rather than a net debtor. The income statement can be reformulated to distinguish income that comes from operating and financing activities:
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