Which of the following statements is correct?
A) The degree of combined leverage measures the sensitivity of earnings per share into changes in EBIT.
B) A firm's business risk is measured by its variability in earnings per share over time.
C) A firm's degree of combined leverage is the product of its degree of operating leverage and its degree of financial leverage.
D) Total leverage does not consider financial leverage.

Question

Quizplus · Accepted Answer

The correct statement is that a firm's degree of combined leverage is the product of its degree of operating leverage and its degree of financial leverage. The degree of combined leverage measures the sensitivity of earnings per share into changes in EBIT. A firm's business risk is not measured by its variability in earnings per share over time. Total leverage includes financial leverage, so statement D is incorrect.

Which of the Following Statements Is Correct