What does financial leverage measure?
A)How quickly a company generates profit from its assets
B)How quickly a company is turning its net income into cash
C)The overall efficiency with which a company uses assets to generate revenues
D)How effectively the company uses debt financing to acquire economic resources

Question

Quizplus · Accepted Answer

Financial leverage measures how effectively a company uses debt financing to acquire economic resources. It represents the amount of debt a company uses to finance its operations and investments, and how that debt affects the return to shareholders. A higher financial leverage ratio indicates that the company is relying more on debt, while a lower ratio indicates that the company is using less debt and relying more on equity financing.

What Does Financial Leverage Measure