Question

Referring to the following standards, compare between operating leverage and financial leverage.

No.	Standard	Operating Leverage	Financial Leverage
1	Source of
2	Effects of
3	Variables of measurement of
4	Avoidable by
5	Kind of Risks

Answer 1

Answer:-

The difference between Operating Leverage and Financial Leverage is as follows:

No.	Standard	Operating Leverage	Financial Leverage
1.	Source of	Fixed costs of the firm	Capital structure of the firm
2.	Effects of	Increased production without investing in additional fixed cost	Increase in return on equity because of increase in stock volatility
3.	Variables of measurement of	Firms's ability to use fixed cost assets to magnify the operating profits	Firms's ability to use fixed cost funds to magnify the return to equity shareholders
4.	Avoidable by	Not using fixed cost generating assets in business	Not using any debt in capital structure
5.	Kind of Risks	Business or operating risk	Financial risk