A company that sells common stock and uses the money to pay off a loan is increasing its use of financial leverage.

Question

Quizplus · Accepted Answer

Selling common stock does not increase a company's financial leverage as it does not involve taking on additional debt. Financial leverage refers to a company's use of debt to finance its operations and investments, and using funds from the sale of equity does not increase this leverage. In fact, selling common stock may actually decrease a company's financial leverage if the funds are used to pay off existing debt, as this reduces the company's outstanding debt balance.

A Company That Sells Common Stock and Uses the Money