Which of the following affects a firm's sensitivity of its earnings to the business cycle?
I. Financial leverage
II. Operating leverage
III. Type of product
A) II only
B) I and II only
C) I and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

All three factors affect a firm's sensitivity of its earnings to the business cycle. Financial leverage amplifies the impact of business cycle fluctuations on a firm's earnings due to fixed financial obligations. Operating leverage does so through fixed operational costs, and the type of product influences how demand for it varies with economic conditions.

Which of the Following Affects a Firm's Sensitivity of Its