Final answer:
The statement is partially true. Operating leverage affects the income statement, not the left-hand side of the balance sheet while financial leverage does indeed affect the right-hand side of the balance sheet. Changes in a company's leverage can be influenced by economic conditions, such as during the technology boom or the Great Recession.
Step-by-step explanation:
The statement is partially true. Operating leverage impacts a company’s break-even point and is related to the proportion of fixed costs in a company's cost structure. It primarily affects the income statement rather than the balance sheet since it involves the relationship between a company’s fixed and variable costs and its sales volume. Higher operating leverage indicates that a larger portion of costs are fixed, which means profitability can be more sensitive to changes in sales volume.
Financial leverage, on the other hand, concerns the right-hand side of the balance sheet. It arises due to the presence of fixed financial commitments - primarily debt. The more debt a company has, the higher its financial leverage will be, which affects the equity and liabilities side of the balance sheet. During economic fluctuations, businesses' demand for financial capital and their corresponding financial leverage can change, as was observed during the technology boom and the Great Recession