Question

What is the difference between a company that has low leverage and one that has high leverage on its balance sheet?

a. Low leverage means that a company has fewer shareholders

b. Low leverage means that a company has more shareholders

c. The difference between a company with low leverage and a company that has high leverage is that the company with high leverage has more debt.

d. There is no difference.

Answer 1

The correct answer is option c.

The difference between a company with low leverage and a company that has high leverage is that the company with high leverage has more debt.

Higher the debt higher is the leverage and lower the leverage lower the debt. That is the main difference. A higher leverage company is riskier than the lower leverage company.

Options a and b are incorrect because leverage is not about the number of shareholders.

Option d is incorrect because there is a difference as explained above.