Question

If you wish to evaluate the financial leverage of a firm, you could look at the Select one: a. current ratio. b. inventory turnover. c. debt ratio. d. return on debt.

Answer 1

The choice between borrowing or issuing stock for financial capital depends on the firm's need for control and willingness to commit to interest payments. Borrowing allows control but requires interest payments, while issuing stock provides capital without interest payments but involves selling ownership to shareholders.

Step-by-step explanation:

If you owned a small firm that needed a surge of financial capital for a major expansion, the choice between borrowing or issuing stock depends on various factors. Borrowing money allows the firm to maintain control of its operations and avoid being subject to shareholders. However, it also commits the firm to scheduled interest payments, regardless of income. On the other hand, issuing stock involves selling off company ownership to the public and becoming responsible to a board of directors and shareholders, but it provides a source of capital without the obligation of interest payments.