Which of the Following Is Not True About Leverage

question 1

Multiple Choice

Which of the following is not true about leverage?

• A) Operating leverage influences the top half of the income statement,determining EBIT.
• B) Financial leverage deals with the bottom half of the income statement,determining EPS.
• C) Combined leverage utilizes the entire income statement,showing the impact of change in volume on EBIT.
• D) Combined leverage utilizes the percentage change in EPS and percentage change in sales.

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Definitions:

Complex Capital Structures

Refers to corporate financial structures that feature a mix of simple and intricate financial instruments, such as multiple classes of stock or convertible bonds.

Cash Dividend

A distribution of a company's profits to its shareholders in the form of cash.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.

Convertible Bonds

Bonds that can be converted into a predetermined number of the issuing company's shares at certain times during its life, usually at the discretion of the bondholder.