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Financial leverage measures

This question belongs to Commerce Financial Management
Financial Management
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Financial leverage measures ____________.

Answer & Solution
Correct Answer: Option C
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¸EBIT
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