Please help with the following problem regarding the differences between operating and financial leverage. Provide at least 200 words and include references in the solution.
Compare operating and financial leverage. How do they differ? What are risks of having excessive financial leverage? Explain the term degree of total leverage.© BrainMass Inc. brainmass.com March 22, 2019, 1:48 am ad1c9bdddf
Assessing the Differences Between Operating and Financial Leverage
What is the difference between operating and financial leverage?
Operating leverage is the proportion of total costs that are fixed and therefore will not grow or contract with growth or cutbacks in volume. Financial leverage is the difference between return on assets and cost of capital. That is, what is the spread between what you earn on your funds and the cost to obtain those funds. So, ...
The following posting discusses the differences between operating and financial leverage. The discussion is given in 243 words and two references and is suitable for an intermediate level student.