Answer to Question #294469 in Economics for Bhawna

Question

Operating leverage is the outcome of the capital budgeting, while

financial leverage is the outcome of the capital structure decision. Do you agree? Explain with examples showing their role and importance in

the leveraging.

Answer 1

Operating leverage is an indication of how a company's costs are structured. The metric is used to determine a company's breakeven point, which is when revenue from sales covers both the fixed and variable costs of production. Financial leverage refers to the amount of debt used to finance the operations of a company.

So, the statement is correct.