If You Wish to Evaluate the Financial Leverage of a Firm

question 71

Multiple Choice

If you wish to evaluate the financial leverage of a firm, you could look at the

• A)current ratio.
• B)debt ratio.
• C)inventory turnover.
• D)return on debt.

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Definitions:

Operating Cash Flow

Cash generated from a company's everyday business operations, indicating its ability to generate sufficient positive cash flow to maintain and grow its operations.

Dividends

A portion of a company's earnings that is paid to shareholders, usually on a quarterly basis.

Fixed Assets

Long-term tangible assets that a company uses in its operations and that are not intended to be sold in the regular course of business.

Interest Expense

Interest expense is the cost incurred by an entity for borrowed funds, typically noted on the income statement as a non-operating expense.