GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Financial leverage
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Operating leverage
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Both (a) and (b)
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None of the above
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Detailed explanation-1: -There are three proportions of leverage that are financial leverage, operating leverage, and combined leverage. The financial leverage assesses the impact of interest costs, while the operating leverage estimates the impact of fixed cost.
Detailed explanation-2: -There are two main types of leverage: financial and operating. To increase financial leverage, a firm may borrow capital through issuing fixed-income securities or by borrowing money directly from a lender.
Detailed explanation-3: -Leverage is the amount of debt a company has in its mix of debt and equity (its capital structure). A company with more debt than average for its industry is said to be highly leveraged. Leverage is not necessarily bad.
Detailed explanation-4: -An example of combined leverage would be if a company’s sales increased by 10%, while the eps increased by 16.67%. In this case, the cl would be 1.67 (Or 0.167).