Tuesday, September 22, 2009

The Biz School Chronicles :: On Financial Leverage and Debt-Equity (Gearing) Ratios

The recent recession has given us enough real world examples of what happens when certain business theories are ignored for the sake of short term gains. This post from HBR, which appeared last week has excellent timing for two reasons. One; It's a nice case study practitioners can learn from (obviously). Two; It's useful for me in preparation for the semester exams, having just finished going through Financial Management. Theory around Degree of Leverage and Ratios sticks better when coupled with a real world example. Sadly, certain theories are well demonstrated by citing instances where companies failed due to ignoring them. Nevertheless, thank you Lehman Brothers (and others) for the case study on Overleverage.