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What is Capital Structure and Leverage Analysis about?

This document discusses capital structure and leverage. It defines business risk as uncertainty about future operating income and explains how operating leverage can affect business risk. Financial leverage is defined as the use of debt and preferred stock, which introduces financial risk for common stockholders. The optimal capital structure balances higher expected returns from leverage against increased risk. Leverage can increase EPS but also widens ROE swings and decreases debt coverage ratios as debt

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