BASIC ASSUMPTIONS RELATED TO DEFINING THE FINANCIAL LEVERAGE

Abstract

This research was inspired by necessity to define financial leverage and the effective monitoring of performances of the financial sector, both for the purposes of regulation as well as for the needs of internal management. The paper elaborates some of the existing possibilities for integrating leverage as traditional concept, and VaR (value at risk, risk value) as the modern concept, which eliminates disadvantages of the first measure, providing far richer and more realistic picture of economic performances and risk units, up to the level of profit centers. A comprehensive analysis of business primarily involves determining the creditworthiness of the observed trading companies. Solvency contained therein is an expression of the financial position, profitability and overall success of the business. It is expressed by certain operating indicators (ratio of numbers). Ratio numbers are determined based on the data corresponding to the financial statements (balance sheet, income statement and statement of cash flows). The definition of financial leverage and liquidity remains a significant issue for a Management team of a company. In addition, it is necessary to make a deeper analysis of trade (activities) and indebtedness. In the end, the determination of liquidity is performed by analyzing the net current assets fund (funds). The risk is more or less uncertainty regarding an expected outcome of the business. This uncertainty is due to the lack of sufficient and reliable information for business decision making.