Economics · Leverage Analysis
Which characteristic primarily differentiates operating leverage from financial leverage?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Operating leverage exists only in manufacturing firms while financial leverage applies only to financial institutions
- 2Operating leverage measures market risk while financial leverage measures liquidity risk
- 3Operating leverage depends on capital structure decisions while financial leverage depends on production technology
- 4Operating leverage arises due to fixed operating costs, while financial leverage results from fixed financing charges✓
Correct answer
Operating leverage arises due to fixed operating costs, while financial leverage results from fixed financing charges
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