Operating leverage is primarily concerned with ___ and ___ costs.

Fixed and variable costs

True or False: Financial leverage amplifies the effects of changes in EBIT on earnings per share.

True

Fill in the blank: Financial leverage is the capacity of a firm to amplify the impacts of changes in EBIT on earnings per share by utilizing ___ costs.

Fixed financial

What is the primary risk associated with high financial leverage?

Increased financial risk due to higher interest obligations.

The degree of combined leverage (DCL) is calculated as the product of the degree of operating leverage (DOL) and what other factor?

Degree of financial leverage (DFL)

Fill in the blank: A company is said to be trading on equity when it has a higher proportion of ___ in its capital structure.

Debt

How does financial leverage impact earnings per share (EPS)?

It can increase EPS when operating profits rise, as fixed-cost funds contribute to higher profits for equity shareholders.

What does the capital gearing ratio indicate about a company's leverage?

It helps determine whether a company is trading on thin or thick equity.

True or False: Operating leverage is related to the liabilities side of the balance sheet.

False; it is related to the assets side.

In the context of leverage, what does the term 'trading on equity' specifically refer to?

Using borrowed funds to generate higher returns for equity shareholders.

Fill in the blank: The combined leverage factor determines the overall sensitivity of pre-tax profits to changes in ___.

Sales

What is the consequence of a company having excessive debt in its capital structure?

It leads to increased interest payments and higher financial risk.