Financial leverage:
A)increases as the net working capital increases.
B)is equal to the market value of a firm divided by the firm's book value.
C)is inversely related to the level of debt.
D)is the ratio of a firm's revenues to its fixed expenses.
E)increases the potential return to the stockholders.

Question

Quizplus · Accepted Answer

Financial leverage increases the potential return to stockholders because it involves using debt to amplify the effects of changes in operating income on the returns to equity holders.

Financial Leverage