Leverage, Business Risk, and Financial Risk- ### Leverage
A firm is said to be leveraged, if it has fixed costs. Using leverage, a firm can magn...
COURSE
Measures of Leverage
This course is a part of CFA Level I study material.
Leverage refers to the use of fixed costs in a company's cost structure. In this reading we will learn about the various measures of leverage, namely, operating leverage and financial leverage. We will also learn about how operating leverage and financial leverage impact the operating earnings and income of the company. Finally we will calculate the breakeven quantity of sales and determine the company's net income at various sales levels.
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Study Notes for CFA Level I - Measures of Leverage
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- Operating leverage arises when a firm has fixed operating costs in its income stream. The presence o...
- Financial leverage arises when a firm has fixed financing costs in its income stream. The presence o...
- Using the formulas for [Degree of Operating Leverage (DOL)](https://financetrain.com/calculate-degre...
- **No fixed financing costs:** If a firm has no fixed financing cost, then there is no financial leve...
- For a firm, the breakeven point is the quantity of the sales required by the firm to cover its total...
LESSONS
How to Calculate Degree of Operating Leverage
Degree of Financial Leverage
Degree of Total Leverage
Impact of Financial Leverage on Net Income and ROE
Breakeven Analysis
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