Identify the statement that is incorrect. Multiple Choice Higher financial leverage involves higher risk. Risk is higher if a company has more liabilities. Risk is higher if a company has more assets. The debt ratio is one measure of financial risk. Lower financial leverage involves lower risk.

Question

Business

Rowan Tyler

12 September, 09:17

Identify the statement that is incorrect. Multiple Choice Higher financial leverage involves higher risk. Risk is higher if a company has more liabilities. Risk is higher if a company has more assets. The debt ratio is one measure of financial risk. Lower financial leverage involves lower risk.

+3

Answers (1)

Know the Answer?

Baron Banks · Answer 1

Risk is higher if a company has more assets.

Explanation:

All of the following statements are true and correct;

1. Higher financial leverage involves higher risk.

2. Risk is higher if a company has more liabilities.

3. The debt ratio is one measure of financial risk.

4. Lower financial leverage involves lower risk.

However, it is false and an absolutely incorrect to say risk is higher if a company has more assets.

A company having more assets would have a debt ratio less than one (1) because it has many assets to fund it's business. Thus, the company would have little or no debts and as such, it's risk portfolio is very low.

Hence, risk is lower if a company has more assets.