Question

An increase in leverage is reflected by an increase in risk to the company and vice versa.

Question 5 options:

	True
	False

Answer 1

Answer is true. Taking the leverage increased the risk and the decision is taken in view of earning higher return. Leverage is for increasing the variable cost to full utilise the fixed cost and thus earn more income or higher per capital income. In leverage there is variable as well as fixed contents like in financial leverage , operating leverage or other form. This is two way edge sword technique which can benefit as well as harm the entity. If increased variable content cost is lower than other cost of income, then profit multiply significantly otherwise reduces significantly. So increase in the leverage is for increasing the income side by side it also increased the risk significantly. So the above given statement is true.