Asked by Naibe Rosas on May 20, 2024
Verified
Financial leverage amplifies relative changes in EBIT into larger relative changes in ROE and EPS, operating leverage amplifies:
A) relative changes in EBIT into larger relative changes in sales revenue.
B) relative changes in sales revenue into larger relative changes in EBIT.
C) relative changes in sales revenue into larger relative changes in ROE and EPS.
D) relative changes in ROE and EPS into larger relative changes in EBIT.
Financial Leverage
The use of debt to increase the potential return of an investment.
Operating Leverage
A measure of how sensitive a company's operating income is to changes in revenue, indicating the degree to which fixed costs affect profitability.
Sales Revenue
The total amount of money received by a company from its sales of goods or services before any expenses are subtracted.
- Understand the link between operating leverage and the costs, both fixed and variable.
- Acquire an understanding of total leverage along with the impact of operating and financial leverage on it.
Verified Answer
Learning Objectives
- Understand the link between operating leverage and the costs, both fixed and variable.
- Acquire an understanding of total leverage along with the impact of operating and financial leverage on it.
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