Asked by Llaneth Valenzuela on May 20, 2024
Verified
Financial risk is not directly associated with ____.
A) ROE
B) EBIT
C) EPS
D) net income
Financial Risk
The possibility of losing money on an investment or business venture due to various financial factors.
ROE
Return on Equity; a financial ratio indicating the profitability of a company by comparing net income to shareholders' equity.
EBIT
Earnings Before Interest and Taxes, a measure of a company's profitability excluding interest and income tax expenses.
- Acquire knowledge about the role of financial leverage in affecting a corporation's earnings per share.
Verified Answer
PC
Priscah ChebetMay 20, 2024
Final Answer :
B
Explanation :
Financial risk is primarily associated with the way a company finances its operations, particularly through debt financing, rather than its operational performance. EBIT (Earnings Before Interest and Taxes) reflects a company's operational performance without considering how it is financed (i.e., the impact of debt), making it not directly associated with financial risk. In contrast, ROE (Return on Equity), EPS (Earnings Per Share), and net income can all be affected by the company's financial structure and thus are related to financial risk.
Learning Objectives
- Acquire knowledge about the role of financial leverage in affecting a corporation's earnings per share.