The Basic Measure of the Amount of Leverage Being Applied

question 24

Multiple Choice

The basic measure of the amount of leverage being applied within the capital structure of an organization is the:

• A)Interest coverage ratio.
• B)Debt ratio.
• C)Return on assets.
• D)Return on equity.

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Definitions:

Depreciated

The reduction in the value of an asset over time, often due to wear and tear or obsolescence.

Tax Purposes

Refers to the reasons or motivations behind actions taken or strategies employed to minimize tax liability or comply with tax laws.

Tax-shield Approach

A method to reduce taxable income through allowable deductions such as interest expenses, resulting in lower taxes.

Operating Cash Flow

The cash generated from the normal operations of a business, reflecting how well it generates cash to fund its operating expenses and working capital.