Question

Given below is the data of two companies:-

Particulars A B

Sales 4,00,000 3,50,000

Variable Cost 40% of sale 40% of sale

Fixed Cost 25,000 30,000

Interest 1,40,000 80,000

Calculate degree of operating leverage, financial leverage and combined leverage. On the basis of results,

comment on financial position of both the companies.​

Answer 1

Interpretation of the same direction i.e. 1 % increase in EBIT will result in 1% increase in EPS. A company should have Financial Leverage only if its operating profit is higher than its inter,est co.sts.

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Answer 2

Answer:

Interpretation of the same direction i.e. 1 % increase in EBIT will result in 1% increase in EPS. A company should have Financial Leverage only if its operating profit is higher than its inter,est co.sts.

Explanation:

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