S1: Operating leverage measures the impact of fixed costs on operating profit. S2: Financial leverage measures the impact of fixed interest costs on earnings per share. Which statement(s) is/are correct? MCQ with Answer and Explanation
S1: Operating leverage measures the impact of fixed costs on operating profit. S2: Financial leverage measures the impact of fixed interest costs on earnings per share. Which statement(s) is/are correct?
A. Neither S1 nor S2
B. S2 only
C. S1 only
D. Both S1 and S2
Answer: Option D
Solution (By JKSSB Mock Tests)
Operating leverage arises from fixed operating costs and affects EBIT. Financial leverage arises from fixed financial charges (interest) and affects EPS. Both statements correctly define the respective leverages.
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