Doi.org/10.52340/eab.2026.18.02.11

The paper titled “Improving the Methodology of Corporate Leverage Analysis” examines both the theoretical and practical dimensions of financial stability and risk management in modern enterprises. In today’s economic environment, a company’s sustainability depends largely on the accurate identification and effective management of risks, which form the foundation of sound managerial decision-making.
The introductory section addresses the diversity of risks and their impact on corporate financial performance. It emphasizes that risks are an inherent feature of contemporary business, and neglecting them can result in substantial financial losses. Accordingly, risk management represents not only an economic necessity but also a strategic imperative. Special attention is given to the international standard ISO 31000, which provides a unified framework for risk management. Its revised 2018 edition places stronger emphasis on management involvement, clear allocation of responsibilities, and the integration of risk management into the organizational structure.
A significant part of the study examines the relationship between investment risk and return. It is observed that every investment decision entails uncertainty, making it essential to evaluate expected returns alongside associated risks. At the theoretical level, it is generally accepted that higher risk should correspond to higher returns; however, in practice, this relationship does not always hold, thereby complicating financial analysis.
One of the central sections of the paper focuses on operating (production) leverage, defined as the sensitivity of profit to changes in sales or production volume. The presented formulas demonstrate that variations in operating profit are directly linked to changes in sales. Under conditions of high operating leverage, even minor fluctuations in sales can lead to substantial shifts in profit, thereby elevating the firm’s risk level. The analysis of examples and tables further illustrates that a higher proportion of fixed costs increases the degree of leverage and, consequently, operational risk.
The study also offers a detailed examination of financial leverage, which reflects the influence of a company’s capital structure on net profit. Financial leverage is determined by the ratio of debt to equity and indicates the extent to which borrowed funds affect financial outcomes. The analysis shows that an increase in debt capital raises both the potential for higher returns and the risk of losses. Accordingly, financial leverage can yield both favorable and unfavorable effects, depending on the efficiency of resource utilization.
The paper outlines the methodology for calculating Earnings per Share (EPS) and its adjusted version, which accounts not only for interest and taxes but also for reinvested earnings and reserves. This approach reflects the modern perspective of financial management, whereby net profit should serve both the interests of shareholders and the objectives of long-term development.
An important section is devoted to the systematic analysis of leverage ratios. Various indicators of operating and financial leverage are examined, along with their implications for risk assessment. Special emphasis is placed on the Fc/EBIT ratio as a relatively general indicator of operational risk, while other ratios are considered as factors influencing overall financial stability.
Within the discussion of financial leverage, different models of capital structure are analyzed, and their effects on corporate financial sustainability are assessed. The findings demonstrate that an increase in the share of debt leads to higher financial risk and greater volatility in shareholders’ returns; however, an optimally chosen capital structure enhances profitability.
The concluding section underscores that corporate financial stability depends largely on the proper assessment and management of leverage. The integrated application of operating and financial leverage enables a more accurate determination of risk levels and strengthens the quality of managerial decision-making. Thus, leverage ratios represent a vital analytical tool in modern financial management, ensuring sustainable development and effective risk control within enterprises.

Keywords: Leverage, financial leverage, operating leverage, financial risk, financial analysis, financial stability of the enterprise.
JEL Codes: G31, G32, G33, M41, C44

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