Debt management ratios

Which of the following is considered a financially leveraged firm?

A company that uses only equity to finance its assets

A company that uses debt to finance some of its assets

Which of the following is true about financial leverage?

Using leverage reduces the potential of gains and losses.

Using leverage can generate shareholder wealth, but if a company fails to make payments on its debt, credit default can reduce

shareholder wealth.

Influenced by a firm's ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies

with

times interest earned $($TIE$)$ ratios.

low

high

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