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Operating Leverage measures the relationship between:
ASales and EBIT
BEBIT and EPS
CSales and EPS
DEBIT and Net profit
Answer & Solution
Correct answer: A. Sales and EBIT
1. Operating Leverage measures sensitivity of EBIT to changes in sales.
2. DOL = %ΔEBIT / %ΔSales = Contribution / EBIT.
3. Indicates business risk.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §3_
Related questions
A 10% increase in sales increases EBIT by 25% in a company. DOL is:A negative operating leverage at a particular sales level implies:Operating Leverage will be high in industries with:A firm has DOL = 3 and a 5% increase in sales. What is the % change in EBIT?Operating Leverage at the Break-Even Point is:Sales ₹10,00,000; Variable Cost ₹6,00,000; Fixed Cost ₹2,00,000. Operating Leverage is:A high Operating Leverage indicates: