What does a financial leverage index greater than one indicate about a firm?
A)Return on assets exceeds the return on equity.
B)Return on equity exceeds the return on assets.
C)The firm is not employing debt successfully.
D)The firm does not generate enough funds to cover interest payments.

Question

Quizplus · Accepted Answer

A financial leverage index greater than one indicates that the firm is employing debt successfully as the return on equity exceeds the return on assets. It means that the firm is generating a higher return for its shareholders by using debt to finance its operations. However, it also means that the firm has higher financial risk as it has more debt obligations to fulfill.

What Does a Financial Leverage Index Greater Than One Indicate