The principle of financial leverage

The principle of financial leverage . Financial leverage is simply a multiplication sign. Using this tool, you can enlarge the result of the investment, whether the final result is revenue or loss, will increase in a fixed proportion. Therefore, before using this tool, investors must carefully analyze the income expectations in the investment project, and the risks they may encounter.

In fact, the safest way is to minimize the expected revenue, and the risk is expected to expand as far as possible, so that the results of investment decisions will inevitably be expected to fall. When using the tool of financial leverage, Vano cash flow spending may increase, must take into account this aspect of the matter, otherwise the capital chain once broken, even if the final result can be a huge profit, but also must face the end of the early exit. Recommended reading: Insist on financial management is victory

The fundamentals of financial leverage are not complicated, but how do you apply a principle to a real paradigm? Like real estate? The use of loan products to operate real estate investment, in fact, simply to rent someone else's money to make money for themselves. However, even for the next stage of the property can be pre-judgment is very optimistic about the situation, nor can use financial leverage unrestricted access to the property. At the very beginning, the space for investors to be allowed to use financial leverage is very small. The reason is very simple, because the source of the loan is financial institutions, in order to protect their own funds, financial institutions must consider whether the loan client can afford the monthly repayment amount, but also to consider if once the customer Vano China's money chain problems, through the auction of customers mortgage property can recover the loan funds.

Because of this, it is difficult for investors to invest in real estate loans to a very high proportion of the loan, even if the loan, but also to pay a much higher cost of borrowing, and second, the lender will be based on the borrower's income to consider whether it can bear the monthly repayment pressure, and the repayment capacity of the decision all depends on the lender all the determined income such as wages, rents and so on. On the other hand, the uncertain income of investors, such as the value-added property, tax deduction and so on, is not possible as a revenue to be counted into the repayment ability of investors.

In addition, the purpose of borrowing money is to use the leverage of money to enlarge their capital ability, make more profits. Finance but borrowing is cost-effective, so you must carefully analyze the calculations before deciding to borrow, confirming that the benefits of the investment must be greater than the cost of the loan, otherwise it will outweigh the costs. To use the lever properly, it is necessary to control the financing risk rationally by combining the combination of the situation and the scientific choice of strategy, so as to optimize the resource allocation to maximize the capital increment. Stock Capital Distribution

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The principle of financial leverage