Increasing financial leverage will always lead to higher EPS because it reduces the number of shares outstanding.

Question

Quizplus · Accepted Answer

Increasing financial leverage may lead to higher EPS in some scenarios, but it is not always the case. Higher financial leverage also means higher interest expense and increased financial risk, which may lead to lower earnings and lower EPS. Additionally, reducing the number of shares outstanding is not the only way to increase EPS; increasing profits can also increase EPS.

Increasing Financial Leverage Will Always Lead to Higher EPS Because