Higher debt-equity ratio results in:

higher degree of financial risk

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

higher EPS

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

higher degree of operating risk

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

lower financial risk

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

Open in App

Solution

The correct option is D
lower financial risk

Financial Risk refers to the chance that a firm will fail to meet its payment obligations. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders). Higher use of debt increases the fixed financial charges (Interest on Debt) of a firm. As a result, increased used of debt increases the financial risk of a firm.

Suggest Corrections

Similar questions

Higher debt-equity ratio results in:

(a) Lower financial risk

(b) Higher degree of operating risk

(d) Higher EPS

Higher working capital usually results in:

(a) Higher current ratio, higher risk and higher profits

(b) Lower current ratio, higher risk and profits

(d) Lower equity, lower risk and higher profits

Higher working capital usually results in

(a) higher current ratio, higher risk and higher profits

(b) lower current ratio, higher risk and profits

(d) lower equity, lower risk and higher profits

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

(\frac{D e b t}{E q u i t y})

Join BYJU'S Learning Program