Leverage Analysis: A Study on Ambuja Cements Limited

Abstract

For every economic activity finance is the lifeblood. From the business perspective leverage refers to the use of owned or borrowed equity to finance the purchase of business assets. Leverage on one hand increases a company’s return on equity on the other hand poses a threat to the company’s existence in the form of liquidation; if company is unable to bear its fixed interest liabilities. Furthermore use of leverage protects dilution of owner’s equity. Thus leverage is a vital decision making area of financial management. Leverage cannot be regarded as a bad practice; as it is useful to finance company’s growth and development through purchase of business assets. Borrowing should be within limits otherwise can pose a threat if company is unable to pay back the borrowed debts. This paper concentrates on the leverage analysis at Ambuja Cements Limited. The objective of the paper is to study the financial performance, leverage analysis and its relationship with profitability of Ambuja Cements Limited and to provide suggestions for financial leverage benefits, further to revise its capital structure so as to maximize company’s growth and shareholders wealth.