The correct answer is: A. EBIT and PBT.
Financial leverage is a measure of a company’s ability to use debt to finance its operations. A high degree of financial leverage means that the company is using a lot of debt, which can magnify both its profits and losses.
EBIT stands for earnings before interest and taxes. PBT stands for profit before tax. Both EBIT and PBT are measures of a company’s profitability.
Financial leverage measures the relationship between EBIT and PBT. A high degree of financial leverage means that a small change in EBIT can lead to a large change in PBT. This is because interest expense is a fixed cost, so when EBIT increases, the company’s profit increases by a greater amount than the increase in EBIT. Conversely, when EBIT decreases, the company’s profit decreases by a greater amount than the decrease in EBIT.
Sales and PBT are not directly related to financial leverage. Sales are a measure of a company’s revenue, while PBT is a measure of its profitability. Financial leverage measures the relationship between a company’s profitability and its use of debt.