Higher debt-equity ratio results in:

Lower financial risk

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Higher degree of operating risk

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Higher degree of financial risk

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Higher EPS

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Solution

The correct option is C
Higher degree of financial risk

Higher debt-equity ratio refers to a situation where the proportion of debt in total capital is higher. This implies higher degree of financial risk. This is because in case of debt, it is obligatory for a business to make interest payments and the return of principal to the debtors. Thus, higher debt increases the financial risk for the business.

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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 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})

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