Financial leverage is beneficial when the company earns more than the incremental after-tax cost of debt.

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Financial leverage refers to using debt financing to increase the potential returns for shareholders. It can be beneficial when the returns generated from the use of debt are greater than the cost of servicing the debt. This means that if a company earns more than the incremental after-tax cost of debt, financial leverage can be a useful tool to increase shareholder returns. In this case, the use of debt financing would be considered a good decision. However, if the returns generated from the use of debt are less than the cost of servicing the debt, then financial leverage can be detrimental to a company's financial stability.

Financial Leverage Is Beneficial When the Company Earns More Than