Measures of Leverage

Question 1

________ is the risk attributed to the operating cost structure, in particular
the use of fixed costs in operations

Answer 1

Operating risk

Question 2

DOL (degree of operating leverage)

Answer 2

= % change in operating income/% change in units sold

= Q(P-V) / (Q(P-V) -F)

Question 3

Degree of financial leverage =

Answer 3

% change in net income /% change in operating income

Question 4

degree of total leverage (DTL)

Answer 4

Percentage change in net income /Percentage change in the number of units sold
=Q(P-V) / (Q(P-V) - F -C)