When EBIT Is Positive, the Effect of fiNancial Leverage Depends

question 328

True/False

When EBIT is positive, the effect of financial leverage depends on the company's EBIT, that is,
leverage is unfavourable when EBIT is relatively high, and leverage is favourable when EBIT is
relatively low.

---

Definitions:

Statement Of Financial Affairs

A detailed report summarizing an entity's assets, liabilities, and equity, providing a snapshot of its financial condition at a specific point in time.

Insolvent

Refers to a financial state where an entity cannot meet its debt obligations as they come due.

Obligations

A legal or financial duty that an entity is required to fulfill, such as debt repayment or service delivery.