What does financial leverage refer to in the context of business?a.The ability to influence market trendsb.The process of reducing risk in investmentc.The use of external funds to increase returnsd.The percentage of equity in a company's capital structure
Question
What does financial leverage refer to in the context of business?a.The ability to influence market trendsb.The process of reducing risk in investmentc.The use of external funds to increase returnsd.The percentage of equity in a company's capital structure
Solution
Financial leverage refers to c. The use of external funds to increase returns. In the context of business, financial leverage is the strategy of using borrowed money to finance investments, with the expectation that the profits made from the investment will be greater than the interest on the debt. This can increase the potential returns for shareholders, but it also increases the risk if the investment does not perform as expected.
Similar Questions
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