Question

Combined leverage can be used to measure the relationship between ___________.

• A. EBIT and EPS
• B. PAT and EPS
• C. Sales and EPS
• D. Sales and EBIT

Answer 1

The correct option is C Sales and EPS

The combined leverage (CL) is not a distinct type of leverage analysis, rather it is a product of the OL and the FL. The CL may be defined as the % change in EPS for a given % change in the sales level and may be calculated as follows:

Combined leverage = Operating leverage X Financial leverage

Combined leverage = % change in EPS / % change in sales