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It indicates leverage benefits and risks which are in fixed quantity. Competitive firms choose high level of degree of combined leverage whereas conservative firms choose lower level of degree of combined leverage. Degree of combined leverage indicates benefits and risks involved in this particular leverage.
Any of these. Medium. Solution. Verified by Toppr. Correct option is C) A degree of combined leverage is the combination of financial leverage and operating leverage.It provides the combined effect of degree of operating leverage and financial leverage. Combined leverage provide the % change in EPS against the % change in sales.
Operating leverage is the measurement of degree to which a firm incurs a combination of fixed cost and variable cost. Operating leverage relates to the result of combination of fixed cost and variable cost. A company with greater proportion of fixed cost is said to be using more operating leverage.
Combined leverage can be used to measure the relationship between ___________. View Solution. Click here:point_up_2:to get an answer to your question :writing_hand:financial leverage measures relationship between.
EBIT ÷ Variable Cost. Medium. Solution. Verified by Toppr. Correct option is B) Financial leverage depicts the amount of the debt used to acquire additional assets. It is the proportion of debt present in the total Capital Structure. The formula for Financial leverage is EBIT/ EBT. Was this answer helpful?
The combined leverage (CL) is not a distinct type of leverage analysis, rather it is a product of the OL and the FL. The CL may be defined as the % change in EPS for a given % change in the sales level and may be calculated as follows:
Adding DOL (Degree of Operating Leverage) and DFL (Degree of Financial Leverage)
DCL (degree of combined leverage) summarizes the effect of fixed operating cost and fixed financial cost. It shows the relationship between change in sales and change in EPS. The ratio is measure of the total risk of business because it includes both operating risk and financial risk.
To use a combination formula, we will need to calculate a factorial. A factorial is the product of all the positive integers equal to and less than the number. A factorial symbol is an exclamation point (!). For example, to write the factorial of 4, we will write 4!. To calculate the factorial of 4, 4! = 4 × 3 × 2 × 1. i.e. 4! = 24.
Financial leverage is the degree to which a company uses fixed cost securities such as debt, preference shares. The more debt financing the company uses, higher is the leverage. If there is no debt, in such case EBIT and EBT of the company are same, hence financial leverage will be one.
