This is a famous saying of Archimedes, an ancient Greek scientist with scientific basis, which has been passed down through the ages. He is based on the principle of leverage.
Scissors, seesaws and tower cranes, which are common in life, all use the lever principle. There are also many levers in our body structure. For example, our arm is a lever. The elbow joint is the fulcrum, and there are muscles on both sides of the fulcrum. This is a laborious lever. Lifting the weight of 1 requires muscles to spend more than 6 times their strength. Although it is very laborious, it can save a certain distance.
When we were in middle school physics, we learned that if the lever is in equilibrium, the two moments (moment = force × arm of force) acting on the lever must be equal. If there are two forces acting on the lever, it is power × force arm = resistance × resistance arm. From this formula, the resistance arm is many times that of the power arm, so to achieve balance, the power must be many times that of the resistance.
According to whether the lever structure is labor-saving, we divide them into three categories: labor-saving lever, labor-saving lever and equal arm lever.
1. When the power arm >; The resistance arm is a labor-saving lever, and bottle openers, trolleys, hay cutters, etc. are all labor-saving levers;
2. When the power arm
3. There is also an equal arm lever, which is labor-saving and does not stretch the distance, just to achieve a balance, such as balance and crown block.
From the principle of lever balance, we know that no lever in the world can save labor and distance, which is another manifestation of the law of conservation of energy.
Because there is a fixed cost in enterprise operation, this fixed cost is equivalent to a lever, which leads to little change in enterprise income and great change in profit.
Usually, we divide fixed costs into costs related to business activities and costs related to financial activities, so there are two types of leverage and the total leverage they form together:
First of all, operating leverage:
Operating leverage is due to the existence of fixed operating costs, and a small change in sales revenue will cause a big change in earnings before interest and tax.
Fixed costs related to business activities include:
Depreciation and amortization, utilities, wages, rent, research and development expenses, insurance premiums, advertising fees, etc. , these costs will form a operating leverage.
When we use operating leverage to evaluate enterprises, we must understand:
Second, the financial leverage:
Financial leverage refers to the phenomenon that the change of earnings before interest and tax leads to a greater change in earnings per share due to the existence of fixed interest expenses generated by debt financing.
For example, loan interest, such expenses will form financial leverage.
Operating leverage affects earnings before interest and tax, and financial leverage affects earnings per share.
Third, the total leverage.
Total leverage = operating leverage x financial leverage. This formula shows the effect of income on earnings per share. The total leverage is that the two amplifiers work together and are finally transmitted from the income side to the earnings per share.
Note: The above views on corporate leverage are taken from Zhihu's answer to Captain Jack.
Now that we know that leverage can enlarge or narrow some changes, how can we use leverage in our lives?
-Today's summary-
Lever principle is a law generally observed in nature, which has obvious amplification (contraction) effect. Using external leverage can help us achieve our goals as soon as possible or easily.