You find that a firm that uses debt has a compound leverage factor less than 1. This tells you that ________.
A) the firm's use of financial leverage is positively contributing to ROE
B) the firm's use of financial leverage is negatively contributing to ROE
C) the firm's use of operating leverage is positively contributing to ROE
D) the firm's use of operating leverage is negatively contributing to ROE

Question

Quizplus · Accepted Answer

The compound leverage factor less than 1 indicates that the firm's use of financial leverage is not contributing positively to the return on equity (ROE). In fact, it suggests that the use of financial leverage is negatively impacting ROE.

You Find That a Firm That Uses Debt Has a Compound