Leverage measures:
A) whether the firm can pay its long-term liabilities.
B) the proportion of borrowed funds compared to equity.
C) whether the firm can pay its current liabilities.
D) profit as a portion of equity.

Question

Quizplus · Accepted Answer

Leverage measures the proportion of borrowed funds compared to equity, which indicates the extent to which a company is relying on borrowed money to finance its operations. It is a measure of the company's financial risk, as high leverage increases the company's vulnerability to changes in interest rates or economic downturns. This measure is commonly used in financial analysis to evaluate a company's financial health and its ability to manage its debt obligations.

Leverage Measures