The total leverage ratio of a company will:
A) increase if operating leases are capitalized
B) increase if a company sells its receivables
C) increase if a company sells more equity
D) increase if a company pays suppliers more quickly

Question

Quizplus · Accepted Answer

Capitalizing operating leases means bringing them onto the balance sheet as a liability, which increases the company's total debt. Since the leverage ratio is calculated as total debt divided by total assets, increasing debt will increase the leverage ratio.

B) Selling receivables could potentially decrease the leverage ratio, as it would reduce the company's total debt.

C) Selling more equity would decrease the leverage ratio, as equity is part of the denominator in the leverage ratio calculation.

D) Paying suppliers more quickly would have no direct impact on the leverage ratio, as it does not affect the company's total debt or assets.

The Total Leverage Ratio of a Company Will