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CS Executive Practice Test: Leverages
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CS Executive Practice Test: Leverages
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25 Questions

1. Operating leverage is directly__ to business risk.
2. In financial analysis, Leverage represents the influence of one__over some other related
3. Assertion (A):
High operating leverage shows a higher burden of fixed cost.
Reason (R):
As fixed cost goes on increasing EBIT reduces.
Select the correct answer from the options given below:
4. Degree of___is the ratio of percentage change in gaming per share to the percentage change in sales.
5. High operating leverage indicates
6. Financial leverage is 2.5. This means a 10% change in EBIT will cause
7. A firm has a DFL of 5.5. What does this tell us about the firm?
8. Financial leverage indicates
9. Operating leverage indicates the tendency of operating profits (EBIT) > to vary disproportionately with zj
10. Total assets of Alpha Company sire ₹ 3,00,000. The company’s total assets turnover ratio is 3, its fixed operating cost is ₹ 1,50,000 and its variable operating cost ratio is 50%. The income-tax rate is 50%. It also has long-term debts of ₹ 1,20,000 on which interest @ 10% is payable. Operating, Financial & Combined Leverages of the company is
11. EBIT = ₹ 4,00,000
Fixed cost = ₹ 6,00,000
Interest = ₹ 80,000
Combined leverage = ?
12. High financial leverage is not good as it indicates the large content of
13. If the fixed costs are high, the operating leverage will also be
14. Output (units) = 3,00,000
Fixed cost = ₹ 3,50,000
Unit variable cost ₹ 1.00
Interest expenses = ₹ 25,000
Unit selling price = ₹ 3.00
Applicable tax rate is 35%
Calculate Financial Leverage.
15. Operating leverage is 7 and financial leverage is 2.2858. How much change in sales will be required to bring 7096 change in EBIT?
16. A firm has a DOL of 4.5 at Q units.
What does this tell us about the firm?
17. The combined leverage is 3.125. This means a 10% change in Sales will cause
18. Which of the following can be treated as ‘Ideal Situation?
19. A firm’s degree of total leverage (DTL) is equal to its degree of operating leverage its degree of financial leverage (DFL).
20. The term Leverage in general refers to a
21. The cash required during a specific period to meet interest expenses and principal payments is referred to as the:
22. A firm has a DFL of 3.5. What does this tell us about the firm?
23. Which of the following are not commonly used measures of leverage in financial analysis?
24. Read the following statement.
(i) With the increase in fixed cost operating leverage diminishes.
(ii) Networking Capital is the excess of current assets over current liabilities.
(iii) Greater the size of the business unit larger will be the requirement of working capital.
(iv) Working Capital is also known as circulating capital.
Which of the above statement is correct?
25. The contribution of a firm is ₹ 4,000.
Fixed Cost:
Situation A ₹ 1,000
Situation B ₹ 2,000
Situation C ₹ 3,000
Compute the operating leverage for the three situations.

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