The lower the fixed-payment coverage ratio, the lower is the firm's financial leverage.

Name: The lower the fixed-payment coverage ratio, the lower is the firm's financial leverage.
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Question

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The fixed-payment coverage ratio measures a firm's ability to meet its fixed obligations such as interest and lease payments. A lower fixed-payment coverage ratio indicates a higher level of financial leverage, as the firm may have difficulty meeting its fixed obligations if its earnings decrease.

The Lower the Fixed-Payment Coverage Ratio, the Lower Is the Firm's