Financing Leverage Analysis : A Conceptual Framework

A conceptual framework for intra-firm financing leverage analysis based on the mechanical analysis of physical leverage (the genesis of the concept of financing leverage) of a corporate firm under condition of future business risk considering a short-term planning horizon, composed of (a) an ex-ante analysis conducted at the beginning of the period for choosing an 'Financing Account Structural Plan' (FASP) from alternative FASPs based on the principle of maximization of expected utility or principle of minimization of absolute value of expected disutility (negative utility) of the 'elasticity coefficient measure' of the 'Degree of Financing Leverage' (DFL) considering the degrees of 'Downside Financing Leverage Risk (DFLR) averseness' and 'Upside Financing Leverage Risk (UFLR) affinity' subjectively assigned by the DFLR averse or UFLR affine decision-maker [noting that a decision-maker with an iota of rationality can never be 'DFLR affine' or 'UFLR averse' to any degree, and utilizing concave utility function and convex utility function for risk aversion and risk affinity respectively]; and (b) an ex-post analysis conducted at the end of the period for the performance appraisal of the decision-maker based on 'financing leverage efficiency,' is formulated and illustrated in this working paper