Question

Jim wants to know what kind of financial leverage his business has. His total debt is $3,000. His total equity is $1,000. Enter your answer as a whole number. Financial Leverage total debt total equity [?]​

Answer 1

Financial leverage is the ratio of total debt to total equity, expressed as a decimal or percentage.

In this case, the total debt is $3,000 and the total equity is $1,000. So, the formula for financial leverage is:

Financial leverage = Total debt / Total equity

Plugging in the given values, we get:

Financial leverage = 3,000 / 1,000

Simplifying the expression, we get:

Financial leverage = 3

Therefore, Jim's business has a financial leverage of 3, which means that the total debt is three times the total equity.