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What is Understanding Leverage and Capital Structure about?

This document discusses leverage and capital structure. It defines leverage as using fixed costs to magnify returns to owners. There are three types of leverage: operating, financial, and total. Operating leverage measures how EBIT changes with sales changes due to fixed operating costs. Financial leverage measures how EPS changes with EBIT changes due to fixed financing costs. Total leverage combines the effects of operating and financial leverage to show how EPS changes with sales changes. Firms choose di

Author

shibidheek

Language

EN