High degree of financial leverage means:

High debt proportion

Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses

Lower debt proportion

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Equal debt and equity

No worries! We‘ve got your back. Try BYJU‘S free classes today!

No debt

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Open in App

Solution

The correct option is A High debt proportion
Financial leverage is the amount of debts that an equity uses for buying additional assets. Its basically the proportion of debt in the capital structure of the company. High degree of financial leverage means the company is using more debts. High degree of leverage indicates higher financial risk.

Suggest Corrections

Similar questions

Financial leverage is called favourable if

(a) Return on investment is lower than the cost of debt

(b) Rol is higher than the cost of debt

(d) If the degree of existing financial leverage is low

Financial leverage is called favourable if

(a) Return on investment is lower than the cost of debt

(b) ROI is higher than the cost of debt

(d) If the degree of existing financial leverage is low

Financial leverage is a proportion of debt in an overall capital. State whether true or false.

Higher debt-equity ratio results in:

(a) Lower financial risk

(b) Higher degree of operating risk

(d) Higher EPS

Join BYJU'S Learning Program