Which of the following statements is true for leverage?
A)assets turnover ratio measures financial leverage
B)leverage always increases profitability
C)leverage is shown in proportion of total assets relative to total equity
D)higher the debt ratio,higher the leverage

Question

Quizplus · Accepted Answer

Leverage refers to the use of debt or other financial instruments to increase the potential return of an investment. The higher the debt ratio (total debt divided by total assets), the higher the leverage. However, it is important to note that while leverage can increase profitability, it also amplifies losses if the investment performs poorly. Therefore, leverage must be used prudently and in accordance with an investor's risk tolerance and investment goals. Assets turnover ratio, on the other hand, measures the efficiency with which a company utilizes its assets to generate revenue and is not directly related to leverage.

Which of the Following Statements Is True for Leverage