Higher the debt ratio, more the financial leverage a firm has and thus, the greater will be its risk and return.

Name: Higher the debt ratio, more the financial leverage a firm has and thus, the greater will be its risk and return.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

This statement is true as a higher debt ratio means that the firm has borrowed more funds, and therefore has a higher financial leverage. This can lead to higher returns on investment but also increases the risk of bankruptcy or default.

Higher the Debt Ratio, More the Financial Leverage a Firm