Which of the Following Is True About the Concept of Leverage

question 85

Multiple Choice

Which of the following is true about the concept of leverage?

• A) At the break-even point,operating leverage is equal to zero.
• B) Combined leverage measures the impact of operating and financial leverage on EBIT.
• C) Financial leverage measures the impact of fixed costs on earnings.
• D) Combined leverage measures the impact of operating and financial leverage on EPS.

---

Definitions:

Total Sales

The entirety of a company's revenues generated from the sale of goods or services before any expenses are subtracted.

Du Pont Identity

A financial analysis framework that breaks down return on equity into three components: profit margin, asset turnover, and financial leverage, highlighting how these factors affect a company's overall financial performance.

Return On Equity

An assessment of a firm's efficiency in producing profit from its shareholders' investments.

Financial Leverage

The use of borrowed funds ("debt") to amplify returns from an investment or project.