The correct answer is: A. operating leverage.
Operating leverage is a measure of how much a company’s operating income (EBIT) changes in response to a change in sales. A company with high operating leverage has a high proportion of fixed costs in its cost structure. This means that a small change in sales can lead to a large change in EBIT.
Financial leverage is a measure of how much a company’s earnings per share (EPS) changes in response to a change in EBIT. A company with high financial leverage has a high proportion of debt in its capital structure. This means that a small change in EBIT can lead to a large change in EPS.
Total leverage is a measure of how much a company’s EPS changes in response to a change in sales. It is the product of operating leverage and financial leverage.
Working capital leverage is a measure of how much a company’s cash flow from operations (CFO) changes in response to a change in sales. A company with high working capital leverage has a high proportion of current assets and current liabilities in its balance sheet. This means that a small change in sales can lead to a large change in CFO.
In conclusion, the measure of business risk is operating leverage. This is because operating leverage is a measure of how much a company’s EBIT changes in response to a change in sales. A company with high operating leverage has a high proportion of fixed costs in its cost structure. This means that a small change in sales can lead to a large change in EBIT.