Financial leverage is associated with which of the following?
(A) $\frac{Debt}{Debt + Capital}$
(B) $\frac{Debt}{Equity}$
(C) $\frac{Equity}{Debt + Capital}$
(D) $\frac{Debt}{Debt + Equity}$
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (B) and (D) only
The proportion of debt in the overall capital is also called financial leverage. Financial leverage is computed as D / E or D /(D+E) when D is the Debt and E is the Equity.