Financial Leverage measures relationship between:

EBIT and PBT

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EBIT and EPS

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Sales and PBT

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Sales and EPS

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Solution

The correct option is A EBIT and EPS
The degree of financial leverage is a ratio used in corporate finance to measure the affect of EPS (earning per share) to the fluctuation in the operating income EBIT( earning before interest and taxes).
EBIT/EPS analysis allows business to see how different capital structure affect the earnings and risk levels of their firm.
It shows the relationship between EBIT and EPS.

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