Managerial Accounting (15th Edition)

Published by McGraw-Hill Education
ISBN 10: 007802563X
ISBN 13: 978-0-07802-563-1

Chapter 15 - Financial Statement Analysis - Questions - Page 697: 15-6

Answer

Financial leverage results from the borrowing of funds at an interest rate value which is different from the ROR (rate of return) on assets acquired using those funds.

Work Step by Step

Financial leverage is positive when: the rate of return on assets > interest rate at which funds were borrowed. Financial leverage is negative: the rate of return on assets < interest rate at which funds were borrowed.
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