Manag., December-2019 – Q84
- Option : C
- Explanation : Composite leverage refers to combining both the operating leverage and financial leverage. Composite leverage discloses the effect on the income statem ent. In other words, operating and financial leverage combine themselves in a multiplicative form to bring about a more proportionate change in earning per share for a given percentage of change in activity. For both operating and financial leverage, one can determine the degree of leverage. In the first case, relate the change in profits that accompanies a change in output; secondly the change in earnings per share that accompanies a change in earnings before interest and taxes. Thus, both type of leverages explain the degree of business risk and financial risk.
