It Is a Basic Truth That Financial Leverage Magnifies Changes

question 48

True/False

It is a basic truth that financial leverage magnifies changes in operating income (EBIT)into larger changes in ROE and EPS. The greater the degree of financial leverage (DFL), the larger the magnification.

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Definitions:

Budgeted Sales

Projected sales amount estimated for a future period, often used in financial planning and performance evaluation.

Inventory Levels

Refers to the quantity of goods and materials on hand that a business has at any given time.

Master Budget

A comprehensive financial plan that outlines an organization's financial and operational goals.

Individual Budgets

Financial plans that allocate resources and forecast the revenues and expenses for each department or project within an organization.