Introduction of the term combined leverage

Question

Give a brief introduction of the term combined leverage? And in what manner it is calculated?

Answer 1

Combined leverage is a leverage that refers to high profits by reason of fixed costs. It consists of fixed operating expenditures with fixed financial expenditures. It indicates leverage profits and risks that are in fixed quantity. Viable firms select high level of degree of combined leverage while conservative firms select lower level of degree of combined leverage. Degree of combined leverage indicates profits and risks involved in this particular leverage.

The recipe that is employed to compute this is illustrated below-

Degree of combined leverage = Degree of financial leverage x Degree of operating leverage.