How Finance Companies NZ Work
Leverage applies to the relationship between credit and equity capital invested in a financial transaction. By reducing the initial capital that is necessary to provide, an increase in profitability. The increase in leverage also increases the risks of the operation, since it causes less flexibility or increased exposure to insolvency or inability to meet payments.
It is derived from the existence in the business of operating fixed costs, which do not depend on the operations. Thus, an increase in production leads to an increase in the number of units produced. An increase in variable costs and other operating expenses also boost growth of a company. Operating leverage is usually determined from the division between the growth rate of profit and the rate of sales growth as shown by Finance Companies NZ.