Trading on the Equity Financial Leverage)is Likely to Be a Good

question 28

Multiple Choice

Trading on the equity financial leverage) is likely to be a good financial strategy for stockholders of companies having

• A)Cyclical high and low amounts of reported earnings
• B)Steady amounts of reported earnings
• C)Volatile fluctuation in reported earnings over short periods of time
• D)Steadily declining amounts of reported earnings

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Definitions:

Profit Margin

A financial metric that measures the amount of net income earned with each dollar of sales generated, indicating the efficiency of a company in converting sales into profits.

Return On Investment

A measure used to evaluate the efficiency or profitability of an investment, calculated by dividing the benefits of an investment by its costs.

Income From Operations

Earnings generated from a company's regular, core business operations, excluding non-operational income and expenses.

Investment Turnover

A measure of the trading activity in an investment portfolio, calculated by dividing the total sales or purchases (whichever is less) of securities by the average value of the portfolio's assets.