Financial Leverage

question 64

Multiple Choice

Financial leverage:

• A)increases as the net working capital increases.
• B)is equal to the market value of a firm divided by the firm's book value.
• C)is inversely related to the level of debt.
• D)is the ratio of a firm's revenues to its fixed expenses.
• E)increases the potential return to the shareholders.

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Definitions:

Gross Profit

The distinction between the income from sales and the expense of goods sold prior to subtracting costs for overheads, wages, taxes, and interest.

Cost of Goods Sold

This is an accounting term that refers to the direct costs attributable to the production of the goods sold by a company.

Income from Operations

Revenue from a company's everyday business activities minus the costs and expenses associated with those operations.

Operating Expenses

Costs associated with the day-to-day operations of a business, including rent, utilities, salaries, and office supplies, but excluding cost of goods sold and capital expenditures.