________ is the potential use of fixed financial charges to magnify the effects of changes in earnings before interest and taxes on a firm's earnings per share.
A) Financial leverage
B) Operating leverage
C) Total leverage
D) Degree of operating leverage

Question

Quizplus · Accepted Answer

The question is describing financial leverage, which involves the use of fixed financial charges such as interest expenses to magnify the effects of changes in earnings before interest and taxes on a firm's earnings per share. Operating leverage, on the other hand, refers to the use of fixed operating expenses to magnify the effects of changes in sales on a firm's earnings before interest and taxes. Total leverage is simply the combined effect of both financial and operating leverage. The degree of operating leverage refers specifically to the percentage change in earnings before interest and taxes resulting from a 1% change in sales.

________ Is the Potential Use of Fixed Financial Charges to Magnify