The correct answer is C. OL is zero.
OL stands for Operating Leverage, which is a measure of how sensitive a company’s earnings are to changes in sales. A company with high operating leverage has a high proportion of fixed costs, which means that a small change in sales can lead to a large change in earnings. A company with low operating leverage has a low proportion of fixed costs, which means that a small change in sales can lead to a small change in earnings.
FL stands for Financial Leverage, which is a measure of how sensitive a company’s earnings per share are to changes in EBIT. A company with high financial leverage has a high proportion of debt, which means that a small change in EBIT can lead to a large change in EPS. A company with low financial leverage has a low proportion of debt, which means that a small change in EBIT can lead to a small change in EPS.
If a firm has no debt, then it has no financial leverage.
This means that its earnings per share will be directly proportional to its earnings before interest and taxes (EBIT). In other words, a small change in EBIT will lead to a small change in EPS. This is why the answer to the question “If a firm has no debt, which one is correct?” is C. OL is zero.