What Does the Term Financial Leverage Mean

question 160

Multiple Choice

What does the term financial leverage mean?

• A) The ability of a company to generate cash flows
• B) The amount of profit earned by one share of common stock
• C) The ability of a company to pay off its current liabilities
• D) The proportion of a company's total capital that is financed by debt, as opposed to equity

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Definitions:

Purely Competitive Firm

A business operating in a market where there are many buyers and sellers, with none being able to influence prices significantly by their individual actions.

Costs

The value of resources consumed in the production of goods and services, including both fixed and variable expenses.

Differentiated Product

A product that is distinct in some way from others in the same category, allowing the seller to compete on factors other than price.

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, allowing for competition based on quality, price, and marketing.