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.

BREAKING DOWN '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.

  1. Acquisition Premium

    An acquisition premium is the difference between the estimated ...
  2. Horizontal Acquisition

    The acquisition of one company by another in the same industry. ...
  3. Acquisition Cost

    1. The cost that a company recognizes on its books for property ...
  4. Operating Leverage

    Operating leverage is a measurement of the degree to which a ...
  5. Mergers and Acquisitions - M&A

    A merger is a combination of two companies to form a new company, ...
  6. Assets under Administration - AUA

    Assets under administration (AUA) is a measure of the total assets ...
Related Articles
  1. Investing

    What Investors Can Learn From M&A Payment Methods

    How a company pays in a merger or acquisition can reveal a lot about the buyer and seller.
  2. Investing

    Analyzing an Acquisition Announcement

    These deals can make or break investors' returns. Find out how to tell the difference.
  3. Insurance

    8 Reasons M&A Deals Fall Through

    Mergers and acquisitions can mean big success. But what about all the deals that fall through?
  4. Investing

    IPOs Are Becoming Less Attractive for Companies

    U.S. companies are choosing to be acquired instead of going public
  5. Investing

    How Mergers and Acquisitions Can Affect A Company

    M&A can have a profound effect on a company’s growth prospects and outlook, but with a significant degree of risk.
  6. Small Business

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
  7. Trading

    The Basics of Forex Leveraging

    A closer look at the controversial topic of leverage in forex trading.
  8. Investing

    4 Mistakes to Avoid When Trading Leveraged ETFs

    Learn the common mistakes made with leveraged ETFs, and discover how you can lose money even if you are right on the direction of a market sector.
  1. What is the difference between an operational expense and an administrative expense?

    An operating expense covers the production and marketing of products and services, whereas an administrative expense covers ... Read Answer >>
  2. What happens to the stock prices of two companies involved in an acquisition?

    When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. ... Read Answer >>
  3. How can a firm bring down its operating leverage?

    Discover how to determine a company's operating leverage and how this metric can be helpful to analysts and investors when ... Read Answer >>
  4. How do I evaluate whether a company is a good acquisition candidate?

    Evaluate whether a company is a good acquisition candidate by analyzing its price, debt load, litigation and financial statements. Read Answer >>
  5. What are the risks of having both high operating leverage and high financial leverage?

    In finance, the term leverage arises often. Both investors and companies employ leverage to generate greater returns on their ... Read Answer >>
  6. What is the difference between a merger and an acquisition?

    Learn about the legal differences between a corporate merger and corporate acquisition – terms used when companies are either ... Read Answer >>
Hot Definitions
  1. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  2. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  3. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  4. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  5. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  6. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
Trading Center