Both operating and financial leverage result in the magnification of return as well as risk.

Question

Quizplus · Accepted Answer

Both operating and financial leverage can increase the return on investment, but they also increase the risk. Operating leverage involves fixed costs, while financial leverage involves debt financing, both of which magnify the impact of changes in sales or income on the company's profitability. Therefore, both types of leverage can result in higher returns, but also higher risk.

Both Operating and Financial Leverage Result in the Magnification of Return