When a firm borrows money,which types of leverage is it using?
A)financial leverage
B)operating leverage
C)shareholder leverage
D)combined operating leverage

Question

Quizplus · Accepted Answer

Financial leverage refers to the use of borrowed funds or debt to finance a firm's operations. When a firm borrows money, it increases its financial leverage, which can potentially increase its profitability and return on investment. This is because the borrowed funds can be used to make investments or carry out projects that have the potential to generate greater returns than the cost of the borrowed funds. However, there is also a risk associated with higher financial leverage, as the company must use a portion of its profits to pay interest on the borrowed funds, which can reduce overall profitability if not managed properly.

When a Firm Borrows Money,which Types of Leverage Is It