Financial leverage is distinct from operating leverage since it accounts for
A) use of debt and preferred stock.
B) variability in fixed operating costs.
C) variability in sales.
D) changes in EBIT.

Question

Quizplus · Accepted Answer

Financial leverage takes into account the use of debt and preferred stock, while operating leverage only considers the relationship between fixed and variable operating costs. Option B is only referencing operating leverage, while option C refers to sales variability which is not relevant to financial leverage. Option D is more relevant to financial analysis overall, but not specifically financial leverage.

Financial Leverage Is Distinct from Operating Leverage Since It Accounts