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Abstract
Financial Leverage is the use of external (borrowed) money invested in the business to finance its fixed assets. Any business has two kinds of investments, i.e., internal and external investment. Internal investment consisting of equity and preference shares bearing no fixed charges. External investments consist of debt and it is borrowed money which can be in the form of loan or debentures. The interest rate on debt is fixed and notwithstanding the company’s rate of return on asset. The financial leverage engaged by a corporate entity is aimed to earn more on the financial leverage fund than its costs. Financial leverage and Debt are moved in the same directions mean its debt increases then financial leverage also increases. The primary purpose of financial leverage is to maximize the shareholder’s return in favorable economic conditions. It is expected that the debt is having a fixed rate of interest which can be realized at a cost lower than the rate of return on net assets. In other terms, if a company has more debt in comparison to equity and preference capital, than it is said that the company is more levered. Financial reports of oil and gas sector companies of India shows a considerable volume of debt capital that constructs a good size of capital structure.