1. Leverage An increased means of accomplishing some purpose
Ex: lifting of heavy objects with the help of leverage.

2. TYPES OF LEVERAGE FINANCIAL LEVERAGE:
It arises out of fixed financial charges
OPERATING LEVERAGE:
It arises out of fixed operating costs

3. Financial Leverage
The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged.

4. MEASURE OF FINANCIAL LEVERAGE
The use of long term fixed interest bearing debt and preference share capital along with equity share capital is called financial leverage

5. Degree of financial leverage =
EBIT / EBIT-I
EBIT = Earnings before Interest and Taxes
I= Interest
Degree of Financial Leverage =
% changes in EPS / % change in EBIT

6. Operating leverage:
The operating leverage has got a bearing on fixed costs. If the firm employs more of fixed costs in its production process greater will be
the operating leverage fixed costs
Operating leverage = contribution/operating profit
Ex: sales 6 per unit variable expenses Rs2 per unit fixed expenses 10000
When fixed costs are lower the operating leverage shows a lesser and will have more EBIT

7. Combined Leverage:
Financial Leverage exists with the use of debt funds, and it is determined by the mix of debt and equity funds operating leverage arises from the use of fixed costs and it is determined by the firms cost structure use of debt involves payments of interest, and fixed cost
Combined leverage = OL X FL

8. = contribution/EBIT X EBIT/EBIT-I
Contribution /EBIT- I
Degree of combined leverage = DOL X DFL
(%change in EBIT / %change in Sales) X (%change in EPS / %Change in EBIT)

9. A company has sales of variable costs fixed costs and long-term loans of at 10% rate of interest calculate the composite leverage
Sales variable cost amd fixed cost and debt of at 10% rate of interest find out combined leverage if the firm wants to double its EBIT how much of a rise in sale needed on percentage basis
Calculate the percentage of change in EPS if sales are increased by 5%
EBIT 1120 (Lakhs) EBT 320 Fixed cost 700

10. Sales revenue
Variable cost
Fixed cost
Calculate degree of operating leverage
Percentage change in EBIT/ Percentage change in sales

11. P company calculate operating and financial leverages
P company calculate operating and financial leverages. The company’s current sales revenue is lakhs and sales are expected to increase by 25% incurred on variable expenses for generating 15lakhs sales revenue the fixed cost is The company has 20 lakhs equity share capital share capital and 20 lakhs 10% debt capital Rs 10 per equity share and 50% tax rate

12. Ex:
A firm is considering tw0 financial plans with a view to examining their impact on EPS total funds required 5,00,000
Financial plan
10%Debt ,00, ,00,ooo
Equity 10Rs each ,00, ,00,000
The earnings before interest and tax are assumed50,000 , 75000, tax 50%

13. Ex:
A Limited company has equity share capital of divided into shares of 100 each it wishes to raise further for expansion The company plan are
1)All common stock
2) inequity and in 10% debentures
3) all debt 10%
4) equity and in 8% preference shares
The company earnings before interest and tax are tax rate 50%
You are required to determine earnings per share in each plan