Chartered Financial Analyst (CFA) Practice Exam Level 2

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the CFA Exam Level 2 with flashcards and multiple-choice questions. Each question includes hints and explanations to boost your confidence and enhance your study process. Get ready for success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What does the leverage index in the Benish Model assess?

The amount of debt a company carries
Revenue growth sustainability
Operating efficiency
The risk of bankruptcy

The correct answer is: The amount of debt a company carries

The leverage index in the Benish Model specifically assesses the amount of debt a company carries in relation to its financial structure. By evaluating leverage, the model provides insight into how much debt a company is utilizing to finance its assets and operations, which is critical in understanding its overall financial health and risk profile. High leverage can indicate that a company is relying more heavily on borrowed funds to fuel its growth, which can amplify both returns when business conditions are favorable and risks during downturns. A company with a higher leverage index may have greater financial strain and an increased risk of default, especially if its cash flows are unable to meet its debt obligations. While other options such as revenue growth sustainability, operating efficiency, and bankruptcy risk are important aspects of a company’s overall financial assessment, they do not specifically correlate with the leverage index being assessed in the Benish Model. The focus on debt levels directly ties to how leverage impacts financial stability, making it the correct answer.