Finance Concepts Flashcards
1
Q
What is Financial Leverage?
A
The measure of debt is used in the capital structure of the firm.
HIgher the Fin. Leverage, higher the risk as more sensitive the firm’s EPS is to change in OP profit
2
Q
The calculation for Financial Leverage
A
EBIT/EBIT-Interest
3
Q
What is Operating Leverage
A
The measure of the extent to capital assets and fixed costs are used by the firm
4
Q
Calculation of operating leverage
A
% change in operating income/% change in volume of units sold
