When a company uses more of loans than equity to finance its business, the company is said to be

Assessment: JAMB UTME - Commerce - 1995 Subject: Commerce

Question 1 Report

When a company uses more of loans than equity to finance its business, the company is said to be
Answer Details
When a company uses more loans than equity to finance its business, the company is said to be "highly geared." In other words, the company has a high level of financial leverage, meaning that a large portion of its assets are funded by borrowing. This can be advantageous because interest paid on loans is tax-deductible, and the company's equity investors benefit from the higher return on their invested capital. However, it can also be risky, as the company may have trouble meeting its debt obligations if its earnings decline.
Read lesson note on Financing Business (JAMB)
Read lesson note on Occupation (WAEC)
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