Financial leverage refers to the
A) Amount of working capital
B) Amount of capital provided by owners
C) Use of borrowed money to increase the return to owners
D) Number of times interest is earned

Question

Quizplus · Accepted Answer

Financial leverage refers to the use of borrowed money (debt) to increase the potential return to owners. This can be beneficial if the return on investment is higher than the cost of borrowing, but it also increases the risk of losses if the investment does not perform as expected. Working capital (A) and capital provided by owners (B) are relevant to a company's finances, but they do not specifically relate to the concept of financial leverage. The number of times interest is earned (D) is a measure of a company's ability to pay its interest expenses and is not directly related to financial leverage.

Financial Leverage Refers to the