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Differences between operating leverage financial leverage and combined leverage?

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Question added by Aziz ur Rehman ur Rehman , Assistant Manager Finance , Central Power Puchasing Agency (CPPA)
Date Posted: 2013/12/17
Vinod Jetley
by Vinod Jetley , Assistant General Manager , State Bank of India

A business that has a higher proportion of fixed costs and a lower proportion of variable costs is said to have used more operating leverage. Contribution per unit of sales is high.

A measure of Financial leverage is debt/equity.The outlay of funds is much higher than the equity and hence leverages profitabity by this factor if there were no debt.

Degree of combined leverage = Degree of operating leverage * Degree of financial leverage. 

 

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