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 financing to magnify returns to equity investors. The higher the proportion of debt in total capital structure, the higher the leverage. Therefore, option D is correct while options A and B are incorrect. Option C refers to the debt-to-equity ratio which is a common measure of leverage but is not a definition of leverage itself.

Which of the Following Statements Is True for Leverage