What is financial leverage?
A) The presence of fixed operating costs that do not change when the level of sales changes
B) The portion of stockholders' risk, over and above basic business risk
C) The risk associated with afirm's operations, ignoring any financing effects
D) The combination of debt and equity used to finance a firm
E) The extent to which fixed-income securities are used in a firm's capital structure

Question

Quizplus · Accepted Answer

Financial leverage refers to the extent to which a firm uses debt in its capital structure. The more debt a firm has, the higher its financial leverage, which can increase the potential for higher returns but also increases risk. Option A refers to operating leverage, option B refers to total risk, and option C refers to business risk. Option D is partially correct but does not specifically refer to leverage.

What Is Financial Leverage