Which of the following measures the sensitivity of a firm's operating profit to changes in its revenues? | Chartered Financial Analyst Level 1 Quiz - LeetQuiz
Chartered Financial Analyst Level 1
Explanation:
Explanation:
Option A (Total leverage) is incorrect because total leverage measures the sensitivity of net income to changes in revenues, capturing both operating and financial leverage.
Option B (Financial leverage) is incorrect because financial leverage reflects the variability of profits introduced by interest charges, i.e., the sensitivity of net profit to changes in operating profit.
Option C (Operating leverage) is correct because it directly measures the sensitivity of operating profit (EBIT) to changes in revenues, which aligns with the question's requirement.
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Which of the following measures the sensitivity of a firm's operating profit to changes in its revenues?