Final answer:
When a firm employs no debt, it has a financial leverage of zero. It does not necessarily mean that the firm will not be profitable. The operating leverage is not equal to the financial leverage in this case.
Step-by-step explanation:
When a firm employs no debt, it means that the firm is not using borrowed money to finance its operations. In this case, the firm has a financial leverage of zero because it has no debt in its capital structure. A firm's financial leverage is calculated by dividing its total debt by its total equity. Since the firm has no debt, the denominator in this calculation is zero, resulting in a financial leverage of zero. It is important to note that having no debt does not necessarily mean that the firm will not be profitable. Profitability depends on many factors such as the firm's ability to generate revenue, manage costs, and make wise investments. While the absence of debt reduces the firm's financial risk, it does not guarantee profitability. On the other hand, operating leverage refers to the firm's fixed costs relative to its variable costs. It represents the degree to which a firm's operating income is affected by changes in revenue. The operating leverage is not directly related to the firm's use of debt, so it is not equal to its financial leverage in this case.