Higher fin lev ratio is riskier? equity, understand, percentage, assets, having

chunty

Pg 363 answer to 5 in cfai text is fsa book.
Company a has higher financial leverage ratio than b. Therefore A is riskier than b.




If A had a higher asset/ equity ratio than b then doesn't that mean it has less debt as a percentage of it's equity? I don't understand why having more assets to equity is riskier than less assets to equity.

chandsingh

Higher assets = more liabilities compared to equity.

A = L + E

A / E = L

NO EXCUSES

busterbluth

annnnnddd, thank you for making me feel like a schmuck...