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What is the difference between Financial Leverage and Operating Leverage?

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Question added by Tamer Mahmoud Bedir Ahmed , Senior Accountant , Cigalah Trading Group
Date Posted: 2015/01/27
Mir Mujtaba Ali
by Mir Mujtaba Ali , Internal Audit Manager , Confidential

When you evaluate whether you can increase production profitably, you are addressing operating leverage. If you are contemplating taking on additional debt, you have entered the realm of financial leverage. Both types are crucial to business success and have different, though related, meanings.

VENKITARAMAN KRISHNA MOORTHY VRINDAVAN
by VENKITARAMAN KRISHNA MOORTHY VRINDAVAN , Project Execution Manager & Accounts Manager , ALI INTERNATIONAL TRADING EST.

Operating leverage establish the relationship between sales and operating profit whereas financial leverage establish the relationship between operating profits and the capital employed.

Operating leverage is the result of the use of Fixed operating costs whereas financial leverage the result of use of the total cost of debt financing.

Operating leverage is used to measure the business risk whereas financial leverage used to measure the financial risk aspects.

 

financial leverage is measure of debt, usually defined as total debt divided by owner's equity and operating leverage compares sales to the cost of production

SAIF Rehman
by SAIF Rehman , Accountant , Eco Smart Light Trading LLC

The extend to which a firm use the combination of fix and variable cost with respect to sale is call operating leverage

While The degree to which an organization utilizing debt money is called Financial leverage.

Habibullah Syed
by Habibullah Syed , Accountant , Farasia Maritime Agencies Pvt Ltd

I endorse Mr. Venkitaraman..................

Waqas Raza Khan
by Waqas Raza Khan , Accountant , Cold Store Group of Saudi Arabia

Well explained by Mr. venkitaraman

AZHAR NAWAZ
by AZHAR NAWAZ , Assistant Manager Accounts , Quantum Geoservices (Pvt) Ltd

Financial Leverage shows how company's capital structure  is financed.

And Operating Leverage tells us About company's cost Structure.

aziz urrehman
by aziz urrehman , key account executive , alkhair group of companies foam manufacturing

Operating leverage is concerned with investment activities of the firm. It is determined by the cost structure of the firm.

Financial leverage is concerned with financing activities of the firm.

It is determined by the capital structure of the firm

Tamer Mahmoud Bedir Ahmed
by Tamer Mahmoud Bedir Ahmed , Senior Accountant , Cigalah Trading Group

@Venkitaraman   this was perfect answer

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