Financial leverage refers to "d. The use of external funds to increase returns" in the context of business.

Here's a step-by-step explanation:

1. Financial leverage is a strategy that companies use to acquire additional assets, on the expectation that the income generated by these new assets will be greater than the cost of borrowing.

2. It involves the use of borrowed funds (external funds) to finance the purchase of company assets.

3. If a company can generate a higher rate of return on the borrowed funds than it pays in interest, it will generate higher returns for the equity holders.

4. However, if the rate of return is lower than the interest rate, it can lead to significant losses. Therefore, financial leverage can increase the potential for both profit and loss.

5. So, in the context of business, financial leverage refers to the use of debt to increase the potential return on equity.

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Financial leverage refers to "d. The use of external funds to increase returns" in the context of business.

Here's a step-by-step explanation:

1. Financial leverage is a strategy that companies use to acquire additional assets, on the expectation that the income generated by these new assets will be greater than the cost of borrowing.

2. It involves the use of borrowed funds (external funds) to finance the purchase of company assets.

3. If a company can generate a higher rate of return on the borrowed funds than it pays in interest, it will generate higher returns for the equity holders.

4. However, if the rate of return is lower than the interest rate, it can lead to significant losses. Therefore, financial leverage can increase the potential for both profit and loss.

5. So, in the context of business, financial leverage refers to the use of debt to increase the potential return on equity.

Knowee AI · Accepted Answer

Financial leverage refers to "d. The use of external funds to increase returns" in the context of business.

Here's a step-by-step explanation:

1. Financial leverage is a strategy that companies use to acquire additional assets, on the expectation that the income generated by these new assets will be greater than the cost of borrowing.

2. It involves the use of borrowed funds (external funds) to finance the purchase of company assets.

3. If a company can generate a higher rate of return on the borrowed funds than it pays in interest, it will generate higher returns for the equity holders.

4. However, if the rate of return is lower than the interest rate, it can lead to significant losses. Therefore, financial leverage can increase the potential for both profit and loss.

5. So, in the context of business, financial leverage refers to the use of debt to increase the potential return on equity.

What does financial leverage refer to in the context of business?a.The process of reducing risk in investmentb.The percentage of equity in a company's capital structurec.The ability to influence market trendsd.The use of external funds to increase returns

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