Following are the main differences between operating leverage and financial leverage:
1. Relation
Operating leverage shows the relationship between sales and operating profit. Financial leverage show the relationship between operating profit and earning per share.
2. Cause
Operating leverage arises due to the use of fixed operating cost. Financial leverage arises due to the use of debt or cost of financing.
3. Measurement Of Risk
Operating leverage measures the business risk. Financial leverage measures the financial risk.
1. Relation
Operating leverage shows the relationship between sales and operating profit. Financial leverage show the relationship between operating profit and earning per share.
2. Cause
Operating leverage arises due to the use of fixed operating cost. Financial leverage arises due to the use of debt or cost of financing.
3. Measurement Of Risk
Operating leverage measures the business risk. Financial leverage measures the financial risk.
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