This leveraged finance template shows the calculation of the internal rate of return of an investment with different levels of leverage.
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Leveraged finance is the use of an above-normal amount of debt, as opposed to equity or cash, to finance the purchase of investment assets. Leveraged finance is done with the goal of increasing an investment’s potential returns, assuming the investment increases in value.
The effective cost of debt is lower than equity (since debt holders are always paid out before equity holders, and hence its lower risk).
Leverage, however, will also increase the volatility of a company’s earnings and cash flow, as well as the risk of lending to or owning said company. These risks will include factors such as – but not limited to – changes in the company’s liquidity, the stability of its industry, and shifts in the economy such as interest rates.
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Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
A well rounded financial analyst possesses all of the above skills!
Additional Questions & Answers
CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
In order to become a great financial analyst, here are some more questions and answers for you to discover:
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