________ is the potential use of fixed operating costs to magnify the effects of changes in sales on earnings before interest and taxes.
A) Financial leverage
B) Operating leverage
C) Total leverage
D) Ratio analysis

Question

Quizplus · Accepted Answer

Operating leverage refers to the use of fixed operating costs, such as rent and salaries, to amplify the impact of changes in sales on a company's earnings before interest and taxes (EBIT). A company with high operating leverage will see a larger change in EBIT for a given change in sales compared to a company with low operating leverage. This can be beneficial in times of increasing sales, but can also be risky in times of declining sales. Financial leverage (A) refers to the use of debt financing to magnify returns, while total leverage (C) is the combined effect of operating and financial leverage. Ratio analysis (D) refers to the use of financial ratios to analyze a company's performance.

________ Is the Potential Use of Fixed Operating Costs to Magnify