Firms at every stage of growth and development, from concept to maturity need found in order to survive. The aim of every business is to maximize the wealth and welfare of its owners.

Without finance, the aim of every business cannot be met. This finance can be said to be the life wire of any firm without which there can be no survive

Financing is the acquisition of cash or other assets through means such is the sale of stocks, retaining net profit and increasing of dept. A firm’s capitalization consists of internally generated founds and due to the fact that a company may not be able to rise al the founds which it requires internally, it may depends on additional external financing.

This capitalization of the firm would therefore incorporate both internally generated founds and external found which comprises loons both short terms and long terms and bonds.

Financial leverage, the subject matter of this study, has to do with the use of external, founds in generating profit for the firm which is primarily the maximization of shareholders wealth and welfare. Leverage invalids the use of external financing to act as qa higher than could be reached without its use. Usually, there exist varying financing structures. A simple common stock structure is one whereby no use is made common stock structure does not have the ability of enjoying the advantages of financing leverage. The use of financing leverage causes the financial structure of a firm being simple and also the impact the owners have on the firm increases by the issuing of common stuck whereas the claim creditors have on the firm increases with the use of borrowed founds.

Leverage therefore is greatly considered when investment is being undertaken by investors. By this investors prefer a firm that is less levered than one that is highly levered.

However, the level of activity that can take place in a firm depends on the level of activity that goes on in the economy. The economy has a direst effect on the activity of the firm and as such firms with debt financing also.