Which of the following is true about the concept of leverage?
A) At the break-even point, operating leverage is equal to zero.
B) Combined leverage measures the impact of operating and financial leverage on EBIT.
C) Financial leverage measures the impact of fixed costs on earnings.
D) None of the options are true.

Question

Quizplus · Accepted Answer

All provided statements about leverage are incorrect. Operating leverage relates to fixed operating costs, not the break-even point. Combined leverage indeed measures the impact of both operating and financial leverage, but on earnings per share (EPS) or net income, not on EBIT. Financial leverage concerns the use of debt to amplify earnings, focusing on fixed financial costs like interest, not fixed costs in general.

Which of the Following Is True About the Concept of Leverage