Q217
Degree of financial leverage is a measure of relationship between ___________.
A.
EPS and EBIT
AnswerB.
EBIT and quantity produced
C.
EPS and quantity produced
D.
EPS and sales
Answer: Option A
Solution
Answer: Option A
Solution:
Degree of financial leverage is a measure of relationship between EPS and EBIT. The degree of financial leverage (DFL) measures the percentage change in EPS for a unit change in operating income, also known as earnings before interest and taxes (EBIT). This ratio indicates that the higher the degree of financial leverage, the more volatile earnings will be.