After reading this article you will learn about Financial Leverage:- 1. Impact of Financial Leverage 2. Degree of Financial Leverage 3. Significance 4. Limitations. Impact of Financial Leverage: The financial leverage is used to magnify the shareholders earnings. It is based on the assumption that the fixed charges/costs funds can be obtained at a cost lower than the firm's rate [...]
Combined/composite/total leverage measures the relationship between quantity produced and sold and EPS. Thus, the degree of combined leverage (DCL) is computed as under: Illustration: Calculate the degree of operating leverage, degree of financial leverage and the degree of combined leverage for the following firms and interpret the result: Solution: Interpretation and Comments: From the above statements, the DOL reveals that [...]
After reading this article you will learn about Profit/Volume (P/V) Graph:- 1. Meaning of Profit/Volume Graph or Profit Chart 2. Method of Constructing P/V Graph. Meaning of Profit/Volume Graph or Profit Chart: A P/V Graph expresses the relationships between profit and volume. Its usefulness is to show a direct relationship between profit and the volume of sales. While contracting this [...]