Financial leverage is a direct function of the ratio of:
A)net income to sales.
B)EBIT to sales.
C)interest expense to EBIT.
D)net income to the number of shares of common stock.

Question

Quizplus · Accepted Answer

Financial leverage is the extent to which a company uses debt to finance its operations. The ratio of interest expense to EBIT measures the degree to which a company's earnings are being used to pay interest on debt. A higher ratio indicates higher financial leverage and greater risk. Options A, B, and D are all related to financial performance measures but do not directly measure financial leverage.

Financial Leverage Is a Direct Function of the Ratio Of