Financial Leverage is also called:
AOperating Leverage
BMargin of Safety
CNet Working Capital
DTrading on Equity
Answer & Solution
Correct answer: D. Trading on Equity
1. Financial Leverage is sometimes called "Trading on Equity".
2. Refers to use of borrowed funds to enhance equity returns.
3. Magnifies both upside and downside.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §4 — Trading on Equity_
Related questions
Financial Leverage is described as a "double-edged sword" because:For DFL calculation when preference dividend exists, the denominator uses:A firm has DFL = 2 and EBIT falls by 10%. EPS will change by:If a company has no debt, what is the Financial Leverage?A change in EPS due to a unit change in EBIT is captured by:EBIT ₹6 lakh; Interest ₹2 lakh. Degree of Financial Leverage is:Financial Leverage measures the relationship between: