{"id":52171,"date":"2024-04-15T23:35:23","date_gmt":"2024-04-15T23:35:23","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=52171"},"modified":"2024-04-15T23:35:23","modified_gmt":"2024-04-15T23:35:23","slug":"the-measure-of-business-risk-is-__________","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/the-measure-of-business-risk-is-__________\/","title":{"rendered":"The measure of business risk is __________."},"content":{"rendered":"

[amp_mcq option1=”operating leverage” option2=”financial leverage” option3=”total leverage” option4=”working capital leverage” correct=”option1″]<\/p>\n

The correct answer is: A. operating leverage<\/strong>.<\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n","protected":false},"excerpt":{"rendered":"

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