Question

"Operating leverage influences the bottom half of the income statement while financial leverage deals with the top half.

A True
B False"

Answer 1

The statement is True.

Step-by-step explanation:

Operating leverage and financial leverage are both financial ratios that measure the degree of financial risk a company bears.

Operating leverage measures how sensitive a company's operating income is to changes in sales volume. It focuses on the fixed costs of a company's operations and how those costs affect profitability. If a company has high fixed costs and low variable costs, it has high operating leverage.

Financial leverage, on the other hand, measures how sensitive a company's net income is to changes in interest expense. It focuses on the company's use of debt to finance its operations. If a company has high levels of debt, it has high financial leverage.