Asked by
Fatima Mourtada
on Dec 01, 2024
Verified
Which of the following is correct?
A) The variation in ROE and EPS for an unleveraged firm is identical to variation in EBIT.
B) In a leveraged firm, the variation in ROE and EPS is always greater than the variation in EBIT.
C) Financial risk is the additional variation in ROE and EPS arising from the use of debt.
D) All of the above
Financial Risk
The possibility of losing money on an investment or business venture.
ROE
Return on Equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.
EPS
Earnings Per Share, a financial ratio that measures the portion of a company's profit allocated to each outstanding share of common stock.
- Appraise the influence of financial leverage on essential performance metrics such as Return on Equity (ROE), Earnings Per Share (EPS), and Earnings Before Interest and Taxes (EBIT).
- Calculate the degree of financial leverage and understand its implications for earnings per share (EPS) variability.
Verified Answer
SG
Learning Objectives
- Appraise the influence of financial leverage on essential performance metrics such as Return on Equity (ROE), Earnings Per Share (EPS), and Earnings Before Interest and Taxes (EBIT).
- Calculate the degree of financial leverage and understand its implications for earnings per share (EPS) variability.