2. Meaning Leverage is an investment technique in which you use a small amount of your own money to make an investment of much larger value. In that way, leverage gives you significant financial power.
4. Operating leverage <ul><li>Operating leverage arises from the existence of fixed operating expenses </li></ul><ul><li>Operating leverage = Contribution/Operating Profit </li></ul>
5. Financial leverage <ul><li>Financial leverage may b defined as the tendency of the residual net income to vary disproportionately with the operating profit. </li></ul><ul><li>It indicates the change that takes place in the taxable income as the result of the change in the operating profit. </li></ul><ul><li>FL = OP(EBIT)/ PBT </li></ul>