[amp_mcq option1=”The effect of the change in the quantity on EBIT” option2=”The effect of the change in EBIT on the EPS of the company” option3=”The effect of the change in output to the EPS of the company” option4=”The effect of change in EPS on the output of the company” correct=”option2″]<\/p>\n
The correct answer is: B. The effect of the change in EBIT on the EPS of the company.<\/p>\n
Operating leverage is a measure of how a company’s operating income (EBIT) changes in response to changes in sales. A company with high operating leverage has a high proportion of fixed costs, so a small change in sales can lead to a large change in EBIT. A company with low operating leverage has a low proportion of fixed costs, so a small change in sales can lead to a small change in EBIT.<\/p>\n
EPS is earnings per share, which is calculated by dividing EBIT by the number of shares outstanding. A company with high operating leverage will have higher EPS when sales are high, but lower EPS when sales are low. A company with low operating leverage will have lower EPS when sales are high, but higher EPS when sales are low.<\/p>\n
Here is a brief explanation of each option:<\/p>\n
A. The effect of the change in the quantity on EBIT. This is not an accurate description of operating leverage. Operating leverage measures the effect of a change in sales on EBIT, not the effect of a change in quantity.<\/p>\n
B. The effect of the change in EBIT on the EPS of the company. This is an accurate description of operating leverage. Operating leverage measures how a company’s EBIT changes in response to changes in sales, and EPS is calculated by dividing EBIT by the number of shares outstanding.<\/p>\n
C. The effect of the change in output to the EPS of the company. This is not an accurate description of operating leverage. Operating leverage measures the effect of a change in sales on EBIT, not the effect of a change in output.<\/p>\n
D. The effect of change in EPS on the output of the company. This is not an accurate description of operating leverage. Operating leverage measures the effect of a change in sales on EBIT, not the effect of a change in EPS.<\/p>\n","protected":false},"excerpt":{"rendered":"
[amp_mcq option1=”The effect of the change in the quantity on EBIT” option2=”The effect of the change in EBIT on the EPS of the company” option3=”The effect of the change in output to the EPS of the company” option4=”The effect of change in EPS on the output of the company” correct=”option2″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"class_list":["post-50011","post","type-post","status-publish","format-standard","hentry","category-financial-management","no-featured-image-padding"],"yoast_head":"\n