Identify the statement that is incorrect.
A) Lower financial leverage involves lower risk.
B) Higher financial leverage involves higher risk.
C) The debt ratio is one measure of financial risk.
D) Risk is higher if a company has more liabilities.
E) Risk is higher if a company has higher assets.

Question

Quizplus · Accepted Answer

The statement "Risk is higher if a company has higher assets" is incorrect. Risk is not directly related to a company's level of assets, but rather to the mix of assets and liabilities. A company with high levels of debt (liabilities) and low levels of equity (assets) will have higher financial risk.

Identify the Statement That Is Incorrect