Financial Leverage and Operational Efficiency: An Empirical Study on the Survival Performance of Mongolian Small and Medium-Sized Mining Enterprises

Abstract

The structure and development of financial leverage for Mongolian small and medium-sized mining enterprises are restricted by resource conditions and the financing environment, and there are considerable differences among the different industries. The three indices in this study are the attributes of capital structure, transmission channels and relation with survival performance; together, they will show the effect of financial leverage on operating efficiency. Therefore, based on the above analysis, the endowment of mineral resources affects the debt-financing structure, fluctuations in the extraction cycle lead to asymmetric changes in capital costs, and thus, changes in leverage have an impact on financial flexibility through the free cash flow channel. Interest expense will continue to decrease the marginal profit, the asset turnover ratio will fluctuate, and together with fixed costs and financial leverage, it will have an amplifying effect. The debt repayment ability will shorten the company's operating cycle; financing flexibility and operational agility are substitutes for one another, and there will be a small margin for the leverage buffer in the face of external price changes. Based on the above research, financial leverage has an upper bound; if it exceeds this upper limit, it will increase the risk of the company. In other words, the choice of leverage is how flexibly and safely one uses funds.