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MCQ on Leverages

1. Which of the following are not commonly used measures of leverage in financial analysis?
(A) Operating Leverage
(B) Financial Leverage
(C) Combined Leverage
(D) Matrix Leverage

2. If the fixed costs are high, the operating leverage will also be
(A) Low
(B) High
(C) Zero
(D) Negative

3. ______ is the ratio of net operating income before fixed charges to net operating income after fixed charges.
(A) Financial Leverage
(B) Operating Leverage
(C) Operation Leverage
(D) Fiscal Leverage

4. The measure of business risk is
(A) Operating leverage
(B) Financial leverage
(C) Combines leverage
(D) Working capital leverage

5. The term Leverage in general refers to a ______.
(A) Relationship between fixed cost and profit
(B) Relationship between sales and fixed cost
(C) Relationship between two inter-related variables
(D) Relationship between two unrelated variables

6. The presence of fixed costs in the total cost structure of firm results into
(A) Financial Leverage
(B) Operating Leverage
(C) Super Leverage
(D) Progressive leverage

7. EBIT is usually the same thing as:
(A) Funds provided by operations
(B) Earnings before taxes
(C) Net income
(D) Operating profit

8. High operating leverage shows
(A) Higher burden of fixed cost and high EBIT
(B) Low burden of fixed cost and high EBIT
(C) Higher burden of fixed cost and low EBIT
(D) Low burden of fixed cost and low EBIT

9. Operating leverage is directly _____ to business risk.
(A) Proportional
(B) Not proportional
(C) Unrelated
(D) Not related

10. In financial analysis, Leverage represents the influence of one _____ over some other related.
(A) Non-financial variable; financial variable
(B) Financial variable; financial variable
(C) Financial variable; non-financial variable
(D) Variable relating to revenue; financial variable

11. More operating leverage leads to
(A) Less financial risk
(B) More financial risk
(C) More business risk
(D) Less business risk

12. High operating leverage indicates ______.
(A) Highly favorable situation as it consists of low fixed costs
(B) The Highly risky situation as it consists of large interest costs
(C) Highly favorable situation as it consists of higher EPS
(D) The Highly risky situation as it consists of large fixed costs

13. Lower financial leverage is related to the use of additional
(A) Fixed costs
(B) Variable costs
(C) Debt financing
(D) Common equity financing

14. Higher operating leverage is related to the use of additional
(A) Fixed costs
(B) Variable costs
(C) Debt financing
(D) Common equity financing

15. The operating leverage indicates the impact of changes in sales on
(A) Operating income
(B) Operating cost
(C) Operating profit after tax
(D) Operating sales

16. The degree of total leverage can be applied in measuring the change in
(A) EBIT to a percentage change in sales
(B) EPS to a percentage change in ‘ EBIT
(C) EPS to a percentage change in sales
(D) Sales to a percentage change in EBIT

17. Where a company has a large number of fixed interest charges, the financial leverage will be
(A) High
(B) Low
(C) Negative
(D) Unreliable

18. Degree of is the ratio of the percentage increase in earnings per share (EPS) to the percentage increase in earnings before interest and taxes (EBIT).
(A) Operating Leverage
(B) Combined Leverage
(C) Working Capital Leverage
(D) Financial Leverage

19. A firm’s degree of total leverage (DTL) is equal to its degree of operating leverage its degree of financial leverage (DFL).
(A) Plus
(B) Minus
(C) Divided by
(D) Multiplied by

20. There is no operating leverage if there is no
(A) Profit
(B) Sales
(C) Fixed cost
(D) EPS

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