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leveragesleverages are of prime importance in the

Leverages

'Leverages' are of prime importance in the analysis of a companies' risk. They give a good picture of the business, financial and the overall risk of a company's operations. Following three leverages are the most important in this regard:

Operating Leverage (OL) = Contribution / EBIT

It is a measure of the business risk.

Financial Leverage (FL) = EBIT / PBT

It is a measure of the financial risk.

Combined Leverage = OL * FL = Contribution / PBT

It is a measure of the overall risk.

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