Leverage Analysis: A Study on Whirlpool LTD

Finance is the life blood of every economic activity. Leverage, as a business term, refers to debt or to the borrowing of funds to finance the purchase of a company's assets. Business owners can use either debt or equity to finance or buy the company's assets. Using debt, or Leverage, increases the company's risk of bankruptcy. It also increases the company's returns; specifically its return on equity. This is true because, if debt financing is used rather than equity financing, then the owner's equity is not diluted by issuing more shares of stock. This paper concentrates on leverage and its relationship between profitability in Whirlpool Ltd. In this paper, an attempt is made to performance an Analysis on: - Financial Performance of Whirlpool Ltd - Leverage of Whirlpool Ltd - Study the relationship between leverage and profitability The financial statements of Whirlpool have been collected over a period of 9 years (2008 to2016). The exploratory research design is adopted in this study which employs secondary data. The data collected is analysed by the percentages, averages, ratios and Correlation analysis tools reveals that the research evidence of the study indicates that, that degree of operating leverage is statistically significant positive correlation with the EPS. The financial performance of Whirlpool is satisfactory. The analysis has shown that Whirlpool has financed its activities mainly from its Net Worth and the amount of Debt has fallen over the years. It is suggested that Whirlpool must increase its Debt funding to take the advantage of Tax Shield. Moreover, Cost of Debt is cheaper than Cost of Equity. Therefore Whirlpool has to revise its capital structure so that financial leverage will help to maximize the shareholders wealth.