While operating leverage results only in a magnification of returns, financial leverage results only in a magnification of risk.

Question

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Operating leverage can magnify both returns and risks, as it involves fixed costs in a company's operations, affecting profitability with changes in sales volume. Financial leverage also magnifies both returns and risks by using debt to finance investments, impacting the company's earnings due to interest obligations.

While Operating Leverage Results Only in a Magnification of Returns