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Question

A higher financial leverage ratio indicates that _____.


A

The dependency of the firm on the debt is more.

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B

The proportion of equity in the total capital is high.

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C

None of the above

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D

The dependency of the firm on the debt is less.

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Solution

The correct option is A

The dependency of the firm on the debt is more.


The dependency of the firm on the debt is more.

Explanation: A higher ratio shows a more prominent capacity to meet commitments related to the leverage ratios to quantify an organisation’s capacity to pay its monetary commitments. Debt capacity alludes to the aggregate sum of debt a business can incur and reimburse as per the details of the debt arrangement.


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