A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage.

Question

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Financial leverage refers to the use of borrowed funds to increase the potential return on investment. When a company issues more debt or liabilities to finance its assets, it increases its financial leverage. This can amplify the returns earned by investors if the company performs well but can also increase the risk of loss if the company underperforms. Therefore, a company with a higher proportion of liabilities compared to its assets is said to have a high degree of financial leverage.

A Company That Finances a Relatively Large Portion of Its