Operating leverage affects the top portion of a firm's income statement whereas financial leverage affects the bottom half of the income statement.

Question

Quizplus · Accepted Answer

Operating leverage impacts costs and revenues related to the core operations of a business, which are typically found in the top portion of the income statement. Financial leverage, on the other hand, relates to the costs of financing (such as interest expenses) which affect net income and are found in the bottom half of the income statement.

Operating Leverage Affects the Top Portion of a Firm's Income