Financial leverage primarily results from a firm's use of:
Correct answer: B. Fixed financing charges
- A. Fixed operating costs
- B. Fixed financing charges
- C. Variable production costs
- D. Short-term trade receivables
Explanation
Financial leverage arises when a firm uses financing that creates fixed payments, such as interest on debt or preference dividends. Fixed operating costs instead create operating leverage.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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