Which of the following statements is most correct?
A)The degree of combined leverage measures the sensitivity of earnings per share in EBIT.
B)A firm's business risk is measured by its variability in earnings per share over time.
C)A firm's degree of combined leverage is the product of its degree of operating leverage and its degree of financial leverage.
D)All the above statements are false.

Question

Quizplus · Accepted Answer

The degree of combined leverage (DCL) measures the sensitivity of earnings per share (EPS) to changes in sales, and is calculated as the product of a firm's degree of operating leverage (DOL) and its degree of financial leverage (DFL). Therefore, statement C is correct. 
Statement A is incorrect as the degree of operating leverage measures the sensitivity of EBIT to changes in sales, not the sensitivity of EPS. 
Statement B is incorrect as a firm's business risk is generally measured by its variability in operating income or EBIT, not in earnings per share. 
Therefore, the correct answer is C.

Which of the Following Statements Is Most Correct