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  • Leverage-WPS Office

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    akash Manwar
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    This document discusses different types of leverage used in finance. It defines leverage as using assets or funds where a firm pays fixed costs or returns. It then defines three main types of leverage: operating leverage, which is using fixed operating costs to magnify changes in profits relative to sales changes; financial leverage, which is using fixed financial charges to magnify the effect of changes in earnings before interest and tax on earnings per share; and combined leverage, which is the relationship between contribution and taxable income considering both operating and financial leverage.

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    it show the report on facility location decision

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    This document discusses different types of leverage used in finance. It defines leverage as using assets or funds where a firm pays fixed costs or returns. It then defines three main types of leverage: operating leverage, which is using fixed operating costs to magnify changes in profits relative to sales changes; financial leverage, which is using fixed financial charges to magnify the effect of changes in earnings before interest and tax on earnings per share; and combined leverage, which is the relationship between contribution and taxable income considering both operating and financial leverage.

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    5 views8 pages

    Leverage-WPS Office

    Uploaded by

    akash Manwar
    This document discusses different types of leverage used in finance. It defines leverage as using assets or funds where a firm pays fixed costs or returns. It then defines three main types of leverage: operating leverage, which is using fixed operating costs to magnify changes in profits relative to sales changes; financial leverage, which is using fixed financial charges to magnify the effect of changes in earnings before interest and tax on earnings per share; and combined leverage, which is the relationship between contribution and taxable income considering both operating and financial leverage.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    Leverage

    Content

    Meaning of Leverage
    • Types of Leverage
    Meaning of Leverage

    • Leverage means the employment of


    assets or funds for which the firm pays a
    fixed cost or fixed return.

    The concept that is used to study the


    effects of various mix of debt and equity
    on the shareholder's return and risk in
    the capital structure of a firm is called
    leverage.
    Types of Leverage
    Operating Leverage

    Financial Leverage

    Combined Leverage
    Meaning of Operating Leverage

    Meaning of Operating Leverage Operating leverage is


    defined as the use of fixed operating costs to magnify a
    change in profits relative to a given changes in sales.

    Operating Leverage = Operating Profits Contribution or


    Contribution EBIT.

    * EBIT = Earning before Interest & Tax

    *Contribution = Sales-Variable cost.


    Meaning of Financial Leverage

    The firms ability to use fixed financial


    charges/costs to magnify the effect of
    changes in earnings before interest & tax
    (EBIT) on firm's earning per share.

    It sometimes treated as "Trading on


    Equity".
    Meaning of Combined
    Leverage

    The combine leverage may be defined


    as the relationship b/w contribution and
    the taxable income.

    Combined Leverage = Operating


    Leverage Financial Leverage
    THANK YOU

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