Financial leverage is concerned with the relation between:
A) changes in volume and changes in EPS.
B) changes in volume and changes in EBIT.
C) changes in EBIT and changes in EPS.
D) changes in EBIT and changes in operating income.

Question

Quizplus · Accepted Answer

Financial leverage refers to the use of debt financing to amplify the potential returns of an investment. It is concerned with the relationship between changes in a company's earnings before interest and taxes (EBIT) and its earnings per share (EPS). Specifically, financial leverage measures the percentage change in EPS that results from a given percentage change in EBIT. Therefore, the correct choice is C as it is concerned with the relationship between changes in EBIT and changes in EPS.

Financial Leverage Is Concerned with the Relation Between