Financial leverage is a direct function of the ratio of:

A) net income to sales.
B) EBIT to sales.
C) interest expense to EBIT.
D) net income to the number of shares of common stock.

Financial Leverage

The use of borrowed money to increase the potential return of an investment.

Net Income

The total earnings of a company after deducting all expenses, taxes, and costs from its total revenue.

EBIT

Earnings Before Interest and Taxes, a measure of a firm's profit that includes all incomes and expenses except interest and income tax expenses.