
League Policies, Taxes, and Profits ◾ 439
age and nancial leverage allows a rm or team to see what part of the business
creates the risk.
As noted, leverage also could be examined in terms of assets and liabilities,
which is known as accounting leverage. e formula for accounting leverage is rela-
tively straightforward:
Accounting Leverage
Total Assets
Total Assets Total
=
−
LLiabilities
is shows, in terms of the rm’s wealth, how sensitive stockholder equity or the rm’s
net worth is to a change in assets. If a rm has a high degree of accounting leverage,
then a small change in assets can have a big impact on the rm’s net worth.
Like most indust ...