Asked by

Erykah Borrero
on Dec 01, 2024

verifed

Verified

Both operating leverage and financial leverage involve the substitution of fixed costs for variable costs.

Operating Leverage

A measure of how revenue growth translates into an increase in operating income, indicating the extent to which a company can increase profitability by increasing sales.

Financial Leverage

The use of borrowed funds in an attempt to increase the returns to equity.

Fixed Costs

For expenses like rent, salaries, and insurance premiums, their amounts do not fluctuate with the levels of output or sales.

  • Become familiar with the connection between operating leverage and financial leverage.
verifed

Verified Answer

EK
Elizabeth KelleyDec 02, 2024
Final Answer:
Get Full Answer