what is operating financial and total leverage explain the relationship between them
The higher the fixed financial costs, the greater the financial leverage. The total leverage of the firm is the use of total fixed costsâboth operating and financialâto magnify the effects of changes in sales on EPS. Debt capital and equity capital make up a firmâs capital structure.he higher the fixed financial costs, the greater the financial leverage. The total leverage of the firm is the use of total fixed costsâboth operating and financialâto magnify the effects of changes in sales on EPS. Debt capital and equity capital make up a firmâs capital structure.
Financial Leverage can be defined as the degree to which an investor or business is utilizing borrowed money as compared to the equity to fund its operatons. The operating leverage is a measure of how revenue growth translates into growth in operating income.t is a measure of leverage, and of how risky (volatile) a company's operating income is. Both operating and financial leverage result in the magnification of changes to earnings due to the presence of fixed costs in a company's cost structure. The difference is only the part of the income statement we are looking at.