The firm's ________ indicates the degree to which effective use of borrowing contributed to the firm's ROE.
A)asset turnover
B)financial leverage
C)profit margin
D)return on assets

Question

Quizplus · Accepted Answer

Financial leverage is the use of borrowed funds to increase the potential return on investment. A high degree of financial leverage can contribute to a higher return on equity (ROE) if the borrowed funds are invested wisely and generate a return that exceeds the cost of borrowing. Therefore, financial leverage is an important factor to consider when analyzing a firm's ROE.

The Firm's ________ Indicates the Degree to Which Effective Use