The three basic types of leverage are:
A) operating, production, and financial.
B) operating, financial, and total.
C) operating, production, and total.
D) production, financial, and total.

Question

Quizplus · Accepted Answer

The three basic types of leverage are operating, financial, and total. Operating leverage refers to the use of fixed costs in a company's cost structure to amplify the effects of changes in sales on its operating income. Financial leverage refers to the use of debt to finance a company's operations, which amplifies the effects of changes in operating income on its earnings per share. Total leverage refers to the combined effect of both operating and financial leverage on a company's earnings per share. These three types of leverage are important concepts in financial analysis and are used to analyze a company's risk and return profile.

The Three Basic Types of Leverage Are