Financial leverage measures ____________.
A. sensitivity of EBIT with respect of % change with respect to output
B. % variation in the level of production
C. sensitivity of EPS with respect to % change in level of EBIT
D. no change with EBIT and EPS
Answer: Option C
Solution (By Examveda Team)
The Financial Leverage (FL) measures the relationship between the EBIT and the EPS and it reflects the effect of change in EBIT on the level of EPS. The FL measures the responsiveness of the EPS to a change in EBIT and is defined as the % change in EPS divided by the % change in EBIT. Symbolically, = Increase in EPS ¸EPS/Increase in EBIT¸EBITThis Question Belongs to Commerce >> Financial Management
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