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4. Debt management ratios Companies have the opportunity to use varying amounts of different sources of financing to acquire their assets, including internal and external sources, and debt (borrowed) and equity funds. Aunt Dottie's Linen Inc. reported no long-term debt in its most recent balance sheet. A company with no debt on its books is referred to as: Q A company with no leverage, or an unleveraged company Q A company with leverage, or a leveraged company which of the following is true about the leveraging effect? Q Using leverage can generate shareholder wealth, but if a company fails to make the interest and principal payments on its debt, credit default can reduce shareholder wealth. Q Using leverage reduces a firm's potential for gains and losses. Influenced by a firm's ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to loans to companies with ratios. low