Which of these leverage ratios summarizes the affect

Info icon This is a preview. Sign up to view the full content.

View Full Document Right Arrow Icon
Question 18: Which of these leverage ratios summarizes the affect a particular amount of financial leverage has on a company's earnings per share (EPS)? The correct answer is b: degree of financial leverage (DFL). DFL equals percent change in EPS divided by percent change in EBIT. This ratio is sometimes expressed as the percentage change in earnings per-share (EPS) available to holders of common stocks associated with a given percentage change in earnings before interest and taxes (EBIT). DFL equals EBIT divided by EBIT minus interest. Assuming no preferred stock, this formula may be expressed as the following: DFL equals EBIT divided by EBIT minus Interest.
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern