Financial Leverage Is Negative in Which of the Following Situations

question 104

Multiple Choice

Financial leverage is negative in which of the following situations?

• A) When the return on total assets is less than the rate of return on common shareholders' equity.
• B) When total liabilities are less than shareholders' equity.
• C) When total liabilities are less than total assets.
• D) When the return on total assets is less than the rate of return demanded by creditors.

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Definitions:

Partnerships

A form of business organization in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in a partnership agreement.

Treasury Stock

Treasury Stock represents shares that were issued and subsequently repurchased by the company, reducing the amount of outstanding stock on the open market.

Common Stock

A type of security that represents ownership in a corporation, granting holders voting rights and a share in the company’s profits via dividends.

Treasury Shares

Shares that were once part of the circulating supply of stock but were subsequently reacquired by the issuing company, reducing the amount of outstanding stock on the open market.