We have seen that financial leverage refers to the substitution of fixed-charge financing-mainly debt (interest and principal) but also preferred stock for common stock. If the firm finances entirely through equity, fluctuations in earnings per share arise entirely through the firm's business risk. If some of this equity is substituted by debt, a smaller group of people is holding the... https://www.expertsmind.com/topic/equity-markets-and-volatility/volatility-and-liquidity-92704.aspx