If an increase in ROA is the result of borrowing at high interest rates, investors could well interpret negative leverage as reﬂecting good news.

Question

Quizplus · Accepted Answer

Negative leverage indicates that a company has more assets than debt, which is generally seen as positive. However, if an increase in ROA (return on assets) is solely due to borrowing at high interest rates, it could be a red flag for investors as it may not be sustainable in the long run. Therefore, investors may not interpret negative leverage as good news in this scenario.

If an Increase in ROA Is the Result of Borrowing