Week 2 Discussion 1 & 2

Week 2 - Discussion Forum 2

Required Resources

Text

Block, S. B., Hirt, G. A., & Danielson, B. R. (2019).  Foundations of financial management  (17th ed.) . Retrieved from https://www.vitalsource.com/

· Chapter 4: Financial Forecasting

· Chapter 5: Operating and Financial Leverage

 

Recommended Resources

Articles

Rao, D. (2018, July 12).  Why bottom up forecasting can improve your top-line predictions (Links to an external site.). Forbes. Retrieved from https://www.forbes.com/sites/dileeprao/2018/07/12/why-bottom-up-forecasting-can-improve-your-top-line-predictions/#8d095384c3ae

· This article provides information about financial forecasting and may assist you in your Financial Forecasting discussion forum this week. Accessibility Statement does not exist. Privacy Policy (Links to an external site.)

Shah, A. (2018, November 27).  Basic forecasting of revenues for unit-based businesses, a Chipotle example (Links to an external site.). Forbes. Retrieved from https://www.forbes.com/sites/alapshah/2018/11/27/basic-forecasting-of-revenues-for-unit-based-businesses-using-chipotle-as-an-example/#5d7e1b5e5be8

· This article provides information about financial forecasting and may assist you in your Financial Forecasting discussion forum this week. Accessibility Statement does not exist. Privacy Policy (Links to an external site.)

Multimedia

Jackson, B. [Brandon Jackson]. (2011, May 25).  Financial leverage explained (Links to an external site.) [Video file]. Retrieved from https://youtu.be/RE47rGfHSTo

· This video provides details about financial leverage and may assist you in your Financial Leverage discussion forum this week. This video has closed captioning and a transcript. Accessibility Statement (Links to an external site.) Privacy Policy (Links to an external site.)

Nelson, T. [Thomas Nelson]. (2015, October 18).  Pro forma business statements part one (Links to an external site.) [Video file]. Retrieved from https://youtu.be/NbY2O7IuFZA

· This video provides details about pro formal financial statements and may assist you in your Week 2 Homework Problems assignment and Week 2 Quiz this week. This video has closed captioning and a transcript. Accessibility Statement (Links to an external site.) Privacy Policy

INSTRUCTION

Prior to beginning work on this discussion, read Chapter 5: Operating and Financial Leverage in your textbook.

As you explored in your textbook, financial leverage refers to the amount of debt used in the capital structure of a business. The degree of financial leverage measures the effect of a change in the earnings per share (EPS) of the company that occurs because of a percent change in the earnings before interest and taxes (EBIT).

List some of the benefits and limitations of financial leverage when it comes to profitability. Then, explain the factors a company should consider when deciding which type of leverage plan (i.e., leveraged or conservative) it should follow.