UTILIZING FINANCIAL LEVERAGE IN THE MANUFACTURING COMPANY ACTIVE IN THE ENGINEERING BUSINESS

Abstract

The aim of this work was to evaluate the effect if the financial leverage and to identify the factors influencing an effective use of the reserves owned by a manufacturing company active in the engineering business. The conducted analysis showed that within the period 2007 - 2009 the company implemented a moderate strategy of capital management, adjusting its activities to the current situation on the market. Within the entire researched period the company had positive working capital.
Within these years the company showed positive financial results which grew systematically. Net profit increased from PLN 2 188 000 in 2007 to PLN 3 080 000 in 2009. The partnership did not experience problems with attracting outside capital. Its
ownership capital was substantial and showed an upward trend (from PLN 7 732 000 in 2007 do PLN 13 463 000 in 2009), which was one of the most important guarantees for the creditors. Using the outside capital of a lower cost than the ownership capital allowed the company to create a favorable capital structure. Due to such a financing strategy, a positive effect of the financial leverage was achieved. The leverage ratio changed from 18,9% in 2007 do 12,7% in 2009.