Profit Before Tax (PBT) of a firm has increased by 40 per cent as a result of 10 per cent increase in…
Financial leverage is 2. Combined leverage is the percentage change in profit before tax divided by the percentage change in sales, giving 40/10 = 4; dividing combined…
Choose your answer
Profit Before Tax (PBT) of a firm has increased by 40 per cent as a result of 10 per cent increase in sales. Operating leverage of the firm is 2. What will be the financial leverage of the firm?
Answer and explanation
Correct answer C
Financial leverage is 2. Combined leverage is the percentage change in profit before tax divided by the percentage change in sales, giving 40/10 = 4; dividing combined leverage by operating leverage gives 4/2 = 2.
Practice for these exams
-
West Bengal SET (WB SET)