Question

Increased financial leverage give rise to _____ volatile eps

Answer 1

Financial leverage is the degree to which a company uses fixed-income securities such as debt and preferred equity.

The more debt financing a company uses, the higher its financial leverage.

A high degree of financial leverage means high interest payments, which negatively affect the company's bottom-line earnings per share.

The best answer to fill in the gap is thus :

Increased financial leverage gives rise to _____ volatile eps

The best Answer is more volatile.

Answer 2

Increased financial leverage give rise to _____ volatile eps

                                                                               Answers:

Financial leverage is defined as the degree up to which a company utilizes the fixed securities.

Whenever a company enhances its preferred equities, there is a sharp rise in the interest payments which in turn reduces the EPS.

This causes an increase in the risk of stockholder's return.

An increase in financial leverage results in higher interest payments which harms the earning per share.