The base level of EBIT must be held constant to compare the financial leverage associated with different levels of fixed financial costs.

Question

Quizplus · Accepted Answer

This statement is true. EBIT (Earnings Before Interest and Taxes) represents the operating income of a company before financial costs such as interest expenses and taxes are deducted. To compare the impact of financial leverage on different levels of fixed financial costs, the base level of EBIT must be held constant. This allows for a fair comparison of the effects of financial leverage on the profitability of different companies or projects.

The Base Level of EBIT Must Be Held Constant to Compare