A9.51 A firm's degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:

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The degree of combined leverage is calculated as degree of operating leverage multiplied by the degree of financial leverage. This is because the degree of operating leverage measures the sensitivity of a firm's EBIT (earnings before interest and taxes) to changes in sales volume, while the degree of financial leverage measures the sensitivity of a firm's earnings per share (EPS) to changes in EBIT, taking into account the effects of debt financing. Multiplying the two measures together gives the overall sensitivity of a firm's EPS to changes in sales volume, which is the degree of combined leverage.

A951 a Firm's Degree of Combined Leverage Can Be Measured