Financial leverage measures the effect of fixed financial costs on the relationship between ________.
A) sales and EBIT
B) sales and EPS
C) EBIT and EPS
D) EBIT and preference dividend

Question

Quizplus · Accepted Answer

Financial leverage measures the effect of fixed financial costs on the relationship between EBIT (Earnings Before Interest and Taxes) and EPS (Earnings Per Share). This is because financial leverage involves the use of debt to finance a company's operations, and the cost of this debt affects the company's net income and, consequently, its EPS.

Financial Leverage Measures the Effect of Fixed Financial Costs on the Relationship