INTRODUCTION
Finance has always been seen as having two distinct functions: recording what has happened (financial accounting) and helping businesses to make decisions about the future (management accounting). Today, it has a third function: financial strategy. This incorporates judgments about risk, which some companies (especially banks) have realized must play a larger part in financial decision-making.
Understanding risk
Fundamental to an understanding of financial strategy are the concepts of leverage and excess risk. “Leverage” is a measurement of the extent to which a business is dependent upon borrowings. The higher the leverage, the greater ...
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