MANAGEMENT

Detailed explanation-1: -Leverage is the use of fixed costs in a company’s cost structure. Business risk is the risk associated with operating earnings and reflects both sales risk (uncertainty with respect to the price and quantity of sales) and operating risk (the risk related to the use of fixed costs in operations).

Detailed explanation-2: -Operating leverage is a measurement of the degree to which a firm incurs a combination of fixed and variable cost. The companies may assess their business risk by capturing a variety of factor.

Detailed explanation-3: -The degree of operating leverage is a method used to quantify a company’s operating risk. This risk arises due to the structure of fixed and variable costs. Fixed costs do not allow the company to adjust its operating costs. Therefore, operating risk rises with an increase in the fixed-to-variable costs proportion.

Detailed explanation-4: -Operating leverage measures a company’s fixed costs as a percentage of its total costs. It is used to evaluate a business’ breakeven point-which is where sales are high enough to pay for all costs, and the profit is zero.

Detailed explanation-5: -Investors can measure risk in many different ways including earnings at risk (EAR), value at risk (VAR), and economic value of equity (EVE). Earnings at risk is the amount that net income may change due to a change in interest rates over a specified period.