Higher debt equity ratio $(\frac{D e b t}{E q u i t y})$ results in ____________.

Lower financial risk

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High degree of operating risk

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High degree of financial risk

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High EPS

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Solution

The correct option is C High degree of financial risk
A high debt/equity ratio is often associated with high risk; it means that a company has been aggressive in financing its growth with debt. If a lot of debt is used to finance growth, a company could potentially generate more earnings than it would have without that financing.

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Similar questions

Higher debt-equity ratio results in:

(a) Lower financial risk

(b) Higher degree of operating risk

(d) Higher EPS

Higher debt equity ratio (Debt/Equity) results in Equity

Higher debt-equity ratio results in:

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

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