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Measure of Leverage

 

Leverage is present because of:

  • Fixed Operating Costs
     
  • Use of Debt in capital structure z
     
  • Breakeven:

When Profit = 0 and Revenue = Costs

  • Breakeven Points:
     


 

  • Operating Break Even:
     

  • Degree of Operating Leverage:
     


 

  • Degree of Financial Leverage:


 

  • Degree of Total Leverage = DOL * DFL

 





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