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Leverage that Affects EBIT and EPS

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Scenario:

I heard something from Bob the bartender the other day (Joe, the former bartender, left to form a financial consulting company). He said one type of leverage affects both EBIT and EPS. I wonder what that meant. Then he said the other type of leverage affects only EPS. I really need some help on this one. What do you think he meant by each of his statements?

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Solution Summary

The solution explains the differences between operating and financial leverage in terms of their effects on EBIT and EPS in 110 words.

Solution Preview

What he meant was that operating leverage affects EBIT, and because of the effect operating leverage has on EBIT, it also affects EPS. Financial leverage has no ...

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