Financial leverage is the action of a firm using some financing activities such as borrowing money to increase the rates of returns for the firm’s common shareholders. The benefit for common shareholders with financial leverage is that even if a firm has low income it can use financial leverage to allow common shareholders to have high returns (Whalen, Baginski, & Bradshaw, 2018). The reasoning the company president had in his or her comment is that the company might not be operating efficiently to use more leverage. This inefficiency of not using leverage may come from the company not being able to bring in enough income to gain more assets.

There are three main threats that the firearms company Smith & Wesson faces according to its 2020 annual report. The first risk is the effects resulting from the COVID-19 pandemic in 2020 (Smith & Wesson, 2020). These pandemic effects are a risk to Smith & Wesson in that the company’s manufacturing processes face reduction or interruption due to the various national and international quarantines and stay-at-home orders. The second risk to Smith & Wesson is restrictive amendments to federal or state firearm legislations. These changes in legislation may pose a risk to Smith & Wesson through the possibilities of further restrictions on the acquiring of firearms or by the “outright ban on private gun ownership” (Smith & Wesson, 2020, p. 22). These restrictions or bans are a risk for Smith & Wesson through reducing the number of sales the company would be able to achieve if its customer base is severely limited. The final major threat for Smith & Wesson is the possibility of unfavorable global economic conditions (Smith & Wesson, 2020). The risk of unfavorable global economic conditions is a risk for Smith & Wesson because it would negatively impact the willingness for consumers to spend money. Out of these three risks, the risk related to COVID-19 is the unexpected risk for Smith & Wesson. This risk is unexpected because retail and manufacturing planners were not expecting states within the United States and countries to have stay-at-home orders that would limit business operations. The remaining two risks are risks that Smith & Wesson expects due to the nature of the firearms industry.