The tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is sometimes referred as:
A)leverage.
B)solvency.
C)yield.
D)quick assets.

Question

Quizplus · Accepted Answer

The tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is referred to as leverage. Leverage is the extent to which a company utilizes debt, or borrowed money, to finance its operations. A company with a high degree of leverage may have a higher rate of return on stockholders' equity due to the increased use of debt, which magnifies the returns, but this also increases the risk.

The Tendency of the Rate Earned on Stockholders' Equity to Vary