POINTS TO REMEMBER
  1. What is leverage? What are its different types?
    • Leverage is a profit-raising tool.
    • Its types are:
      • ROI leverage
      • Marginal-analysis leverage, such as operating leverage, fixed- charge leverage and combined leverage
      • Financial leverage
  2. What is ROI leverage?
    • ROI leverage = Profit margin x asset turnover. It means that profits can be raised through raising either/both of the two ratios
  3. What is operating leverage?
    • It exists when changes in contribution margin produce greater changes in operating profit. DOL = MC/EBIT
  4. What is fixed charge leverage?
    • It exists when changes in EBIT lead to greater changes in EBT. DFCL = EBIT/EBT
  5. What is combined leverage?
    • It is a product of operating leverage and fixed-charge leverage. ...

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