SHS Web Conf.
Volume 83, 2020Current Problems of the Corporate Sector 2020
|Number of page(s)||6|
|Section||Economics, Management and Finance|
|Published online||30 October 2020|
How leverage can improve performance
1 University of Economics in Bratislava, Faculty of Business Management, Department of Business Finance, Dolnozemská cesta 1, 852 35 Bratislava, Slovakia
2 University of Economics in Bratislava, Faculty of Business Management, Department of Business Finance, Dolnozemská cesta 1, 852 35 Bratislava, Slovakia
* Corresponding author: firstname.lastname@example.org
One of the best-known Capital Asset Pricing Model (CAP/M) provides us with a methodology for measuring the relationship between the risk premium and the impact of leverage on expected returns. However, this model is not used only to value the cost of capital but also to evaluate the performance of managed portfolios. We will test how the expected return changes in percent by changing the debt-equity ratio and the tax rate based on following assumptions: market return 7%, risk-free rate of return 1% and beta 1.2. These assumptions will be constant and we will change the debt-equity ratio and tax rate. Based on these results, it is clear that the change in profitability varies, in relation to the change of the DE ratio by one tenth. As for changes I n tax rates, changes in expected profitability are not entirely in direct proportion to these changes.
© The Authors, published by EDP Sciences, 2020
This is an Open Access article distributed under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Current usage metrics show cumulative count of Article Views (full-text article views including HTML views, PDF and ePub downloads, according to the available data) and Abstracts Views on Vision4Press platform.
Data correspond to usage on the plateform after 2015. The current usage metrics is available 48-96 hours after online publication and is updated daily on week days.
Initial download of the metrics may take a while.