The more fixed-charge securities (such as bonds and preferred stock)the firm employs in its financial structure,the greater its financial leverage.

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The use of fixed-charge securities increases a firm's financial leverage because these securities require a fixed payment regardless of the firm's performance. This means that if the firm's earnings decrease, the fixed payments on these securities become a larger proportion of the firm's total earnings, which can lead to financial distress. As such, the more fixed-charge securities a firm employs in its financial structure, the greater its financial leverage.

The More Fixed-Charge Securities (Such as Bonds and Preferred Stock)the