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Combined (Total) Leverage measures the relationship between:
ASales and EBIT
BSales and EPS
CEBIT and EPS
DInterest and EPS
Answer & Solution
Correct answer: B. Sales and EPS
1. Combined Leverage = DOL × DFL = %ΔEPS / %ΔSales.
2. Sensitivity of EPS to changes in Sales.
3. Indicates total risk (business + financial).
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §5_
Related questions
A firm has high Operating Leverage but Low Financial Leverage. This signals:Combined Leverage equals 1 only when:Combined Leverage of 2.5 and 4% increase in sales will change EPS by approximately:Sales ₹20 lakh; VC ₹12 lakh; Fixed Cost ₹4 lakh; Interest ₹2 lakh. DCL is:A company has DOL = 2 and DFL = 1.5. Combined Leverage is: