The degree of combined leverage (DCL) summarizes the effect of both operating and financial leverage has on the Earning per share (EPS). The ratio provides an idea of the total risk of the business, because it includes both operational risk as well as financial risk.
Management (MBA) questions on this topic:
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The data related to two companies A and B, are as under-
Company A
Sales 500000
Variable cost 20% of sales
Fixed Cost 1.2 lacs
Interest 0.5 lacs
company B
Sales 1000000
Variable cost 25% of sales
Fixed Cost 2 lacs
Interest 0.75 lacs
Q) Determine the operating and financial leverage (5 Marks)
Q) Determine the combined leverage for them. Also, comment on the relative risk position of the companies
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