UNIT - 3

LEVERAGE ‡ Leverage is the influence of one financial variables of the other. There are three types of leverages ‡ 1. Operating Leverage ‡ 2. Combined Leverage ± to use borrowed money in order to buy it or pay for it. ‡ DEFINITION: Leverage is the employment of an asset or funds for which the firm pays a fixed cost or fixed return -James Horne . Financial Leverage ‡ 3.

L. ‡ It is def ‡ O.) ‡ The leverage associated with investment activities is called operating leverage.L.L=Contribution / Operating Profit(EBIT) ‡ (single structure) .OPERATING LEVERAGE(O. = % of Changes in EBIT (Double Structure) ‡ % of Changes in Sales ‡ O.


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