How Does the Financial Leverage Ratio Impact a Company’s Per

The financial leverage ratio is a critical tool for evaluating how much debt a company uses to finance its operations compared to its equity. This ratio highlights the balance between risk and return, showing how effectively borrowed funds are being utilized. A higher financial leverage ratio indicates greater dependence on debt, which can increase returns during growth but also raise risks if revenues decline. On the other hand, a lower ratio signals stability with less financial risk. Understanding the financial leverage ratio helps investors, managers, and stakeholders assess profitability, risk exposure, and long-term financial sustainability.