Financial leverage is likely to be a good financial strategy for stockholders of companies having
A) Cyclical high and low amounts of reported earnings
B) Steady amounts of reported earnings
C) Volatile fluctuation in reported earnings over short periods of time
D) Steadily declining amounts of reported earnings

Question

Quizplus · Accepted Answer

Financial leverage involves using debt to finance operations. It is most beneficial for companies with steady earnings, as they can reliably meet interest payments and benefit from the leverage. Companies with cyclical, volatile, or declining earnings face higher risks with leverage due to uncertain income streams.

Financial Leverage Is Likely to Be a Good Financial Strategy