If a firm increases its leverage, which extended Du Pont equation ratio is most directly affected?

Question

Quizplus · Accepted Answer

The equity multiplier directly reflects the amount of leverage a firm is using to finance its operations. A higher equity multiplier indicates that the firm is relying more heavily on debt to fund its assets, which increases its financial risk. As a result, increasing leverage will impact the equity multiplier the most. The other ratios in the extended Du Pont equation (ROS, ROA, and total asset turnover) are not directly related to leverage.

If a Firm Increases Its Leverage, Which Extended Du Pont