What does financial leverage refer to in the context of business?a.The use of external funds to increase returnsb.The process of reducing risk in investmentc.The ability to influence market trendsd.The percentage of equity in a company's capital structureCLEAR MY CHOICE
Question
What does financial leverage refer to in the context of business?a.The use of external funds to increase returnsb.The process of reducing risk in investmentc.The ability to influence market trendsd.The percentage of equity in a company's capital structureCLEAR MY CHOICE
Solution
Financial leverage in the context of business refers to the use of borrowed money (external funds) to finance the purchase of company assets. In other words, it's when a company uses debt to generate profits. If these profits are higher than the interest and other costs associated with the debt, the shareholders benefit. So, the correct answer is a. The use of external funds to increase returns.
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