A company is effectively leveraging when:
A) the return on assets exceeds the return on shareholders' equity.
B) the return on shareholders' equity exceeds the return on assets.
C) the return on shareholders' equity is increasing.
D) the return on assets is increasing.

Question

Quizplus · Accepted Answer

Effective leveraging occurs when the return on shareholders' equity exceeds the return on assets. This means that the company is using debt to finance its operations and generating a higher return for shareholders than the cost of borrowing. However, if the return on assets is also increasing or the return on shareholders' equity is increasing, it could be an additional positive sign for the company.

A Company Is Effectively Leveraging When