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

Question

Quizplus · Accepted Answer

Leverage refers to the use of debt to finance a company's operations and investments. If a company has a high level of debt relative to its equity, it can lead to a situation where the rate of return earned on equity is much higher (or much lower) than the rate of return earned on total assets. This can also be referred to as financial leverage, and it can have a significant impact on a company's profitability and risk profile. Therefore, the best choice for the tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is A) leverage.

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