What does the term financial leverage mean?
A) The ability of a company to generate cash flows
B) The amount of profit earned by one share of common stock
C) The ability of a company to pay off its current liabilities
D) The proportion of a company's total capital that is financed by debt, as opposed to equity

Question

Quizplus · Accepted Answer

Financial leverage refers to the proportion of a company's total capital that is financed by debt, as opposed to equity. It is a measure of how much debt a company uses to finance its operations and growth. A high level of financial leverage can increase a company's potential profitability, but also increases the risk of default if the company is unable to meet its debt obligations.

What Does the Term Financial Leverage Mean