Higher debt-equity ratio results in (a) lower financial risk (b) higher degree of operating risk

Question

Higher debt-equity ratio results in (a) lower financial risk (b) higher degree of operating risk

Higher debt-equity ratio results in

(a) lower financial risk

(b) higher degree of operating risk

(c) higher degree of financial risk

(d) higher EPS

Monjur Alahi

5 views

2025-01-04 04:42

1 Answers

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Salim Ahmed Kawsar · Accepted Answer · 2023-02-05T15:29:48+06:00

(c) Higher debt- equity ratio refers to a situation where the proportion of debt in total capital is higher. This implies higher degree of financial risk. This is because in case of debt, it is obligatory for a business to make interest payments and the return of principal to the debtors. Thus, higher debt increases the financial risk for the business.