Total leverage can be defined as the potential use of fixed costs, both operating and financial, to magnify the effect of changes in sales on a firm's earnings per share.

Question

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This is a correct definition of total leverage. Total leverage is the combined effect of operating leverage (fixed operating costs) and financial leverage (fixed financing costs) on a firm's earnings per share. By using fixed costs, a company can increase their potential profits but also risk increased losses if sales decrease.

Total Leverage Can Be Defined as the Potential Use of Fixed