Read the following case study and answer question.

Aninjey is a CEO of Alfa Ltd. He is running a shoe business where his company is manufacturing canvas shoes, made up of breathable t-shirt fabric. His business is having a good liquidity position. He has already issued 200 equity shares earlier and has a company policy of paying regular dividends to its shareholders. He wants to expand his business and for that he required "100 crores. He asked his Finance Manager to prepare a financial blueprint Of the same in order 10 have the right debt-equity ratio, so that a right financial balance can be maintained.

The proportion of debt in the overall capital is known as :

Financial Leverage

The correct answer is option (3) : Financial Leverage

The proportion of debt in the overall capital is known as:

(3) Financial Leverage Financial Leverage:

Definition: Financial leverage refers to the use of debt or borrowed capital in a company's capital structure to increase the potential return on investment (ROI).

Explanation: When a company uses debt to finance its operations or investments, it is employing financial leverage. This involves a mix of debt and equity in the capital structure. The proportion of debt in relation to equity determines the level of financial leverage.

Example : If a company has $50 million in equity and $50 million in debt, the debt-to-equity ratio is 1 : 1. This implies that for every dollar of equity there is an equal amount of debt.