Economics · Capital Structure and Leverage
What is financial leverage in the context of a company's capital structure?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The ratio of working capital to total fixed investments in manufacturing machinery
- 2The use of fixed-income securities like bonds or preferred stock to increase potential returns to common shareholders✓
- 3The proportion of liquid cash reserves maintained relative to short-term liabilities
- 4The exclusive use of retained earnings to fund capital expenditure
Correct answer
The use of fixed-income securities like bonds or preferred stock to increase potential returns to common shareholders
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