General And Administrative Leverage

AAA

DEFINITION of 'General And Administrative Leverage'

A variable within a cost benefit analysis of an acquisition where the potential reduction in overall general and administrative expenses of the combined company are considered. Through synergies and cost-saving programs, the general and administrative costs of the combined company often will be considerably less than the sum of the general and administrative costs of the two independent companies. The more the potential savings, the more attractive the acquisition becomes, when all else is equal.

INVESTOPEDIA EXPLAINS 'General And Administrative Leverage'

When valuing an acquisition it is essential that a company accurately value the benefit of a target company's general and administrative leverage. One of the reasons, a company would want to acquire another company is the economies of scale that can be achieved. Subsequently, if the cost savings that have been identified from general and administrative leverage are overestimated, the acquiring company may be worse off after the acquisition. But it is important to note that this is only one aspect of the overall analysis of a potential acquisition.

RELATED TERMS
  1. Economies Of Scale

    The cost advantage that arises with increased output of a product. ...
  2. Synergy

    The concept that the value and performance of two companies combined ...
  3. Selling, General & Administrative ...

    Reported on the income statement, it is the sum of all direct ...
  4. Acquisition

    A corporate action in which a company buys most, if not all, ...
  5. Acquisition Fee

    A fee charged by a lessor to cover the expenses incurred in arranging ...
  6. Acquisition Premium

    The difference between the estimated real value of a company ...
Related Articles
  1. Mergers & Acquisitions: An Avenue For ...
    Forex Education

    Mergers & Acquisitions: An Avenue For ...

  2. What Are Economies Of Scale?
    Economics

    What Are Economies Of Scale?

  3. The Basics Of Mergers And Acquisitions
    Options & Futures

    The Basics Of Mergers And Acquisitions

  4. War's Influence On Wall Street
    Bonds & Fixed Income

    War's Influence On Wall Street

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center