Leverage adds variability to financial performance when operating results changes which means performance is __________________ with more leverage.
A)unchanged
B)riskier
C)less risky

Question

Leverage adds variability to financial performance when operating results changes which means performance is __________________ with more leverage. ​ ​
A)unchanged​
B)riskier​
C)less risky​

Quizplus · Accepted Answer

Leverage amplifies the impact of changes in operating results, making it riskier. This is because with more debt, a company has fixed interest payments to make regardless of its operating performance. If operating results decline, the company still has to make those interest payments, which can lead to financial distress. Conversely, if operating results improve, leverage can amplify the positive impact on earnings and financial performance.

Leverage Adds Variability to Financial Performance When Operating Results Changes