A retailer can increase its financial leverage through ________.
A) selling common stock
B) leasing rather than purchasing assets
C) reducing operating expenses
D) increasing short- and long-term debt

Question

Quizplus · Accepted Answer

Increasing short- and long-term debt increases a company's financial leverage, which is the use of borrowed money to increase the return on equity. However, this also increases the risk for the company as it has to pay interest on borrowed money. Selling common stock dilutes ownership and reduces financial leverage, while leasing rather than purchasing assets may lower the asset base but does not directly increase financial leverage. Reducing operating expenses may improve profitability, but it does not necessarily increase financial leverage.

A Retailer Can Increase Its Financial Leverage Through ________