If a company has no operating leverage, its degree of financial leverage is equal to its degree of combined leverage.

Question

Quizplus · Accepted Answer

The degree of financial leverage is calculated as the ratio of the percentage change in earnings per share to the percentage change in operating income. The degree of combined leverage is calculated as the ratio of the percentage change in earnings per share to the percentage change in sales. If a company has no operating leverage, then the percentage change in operating income will be equal to the percentage change in sales. Therefore, the degree of financial leverage will be equal to the degree of combined leverage.

If a Company Has No Operating Leverage, Its Degree of Financial