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BRILLIANT’S Leverage Analysis 379

there is a risk of exceptional loss. Therefore, it h¡ Vmo, Bg_| hm{Z hmoZo H$s [añH$ hmoVr h¡Ÿ& AV… Am°naoqQ>J
is a measure of firm's business risk. The busi-
brdaoO {~OZog H$s [añH$ H$mo Xem©Vm h¡Ÿ& `h [añH$ bm^
ness risk refers to the uncertainty or variabil-
H$s A{ZpíMVVm H$mo boH$a hmoVr h¡Ÿ&
ity of the firm’s EBIT.
3. Production Planning: DOL is also im- 3. àmoS>ŠeZ ßbmqZJ… Am°naoqQ>J brdaoO àmoS>ŠeZ
portant in production planning. The firm may Ho$ {bE ßbmZ ~ZmZo _| ghm`H$ hmoVm h¡Ÿ& \$_© Am°Q>mo_o{Q>H$
have the opportunity to change its cost struc- _erZ| bJmH$a l{_H$m| H$s g§»`m H$mo {Z`§{ÌV H$aZo H$s
ture by introducing labour saving machinery `moOZm ~Zm gH$Vr h¡ Vm{H$ _OXyar d AÝ` n[adV©Zerb
and there by reducing variable overheads Cn[aì`` H$_ hmo gHo$Ÿna§Vw {\$ŠñS> H$m°ñQ> _| d¥[Õ hmoJrŸ&
while increasing fixed costs. Such a situation
will increase DOL. Any method of production Eogr n[apñW{V Ho$ H$maU DOL ~‹T>oJr& DOL _| d¥{Õ H$aZo
which increases DOL is justified only if there is dmco àmoS>ŠeZ _oWS> V^r ghr _mZo OmVo h¢ O~ {dH«$` _|
probability of higher sales so that the firm can d¥{Õ H$s g§^mdZm hmo Vm{H$ \$_© A{YH$ DOL na A{YH$
enjoy higher earnings on higher DOL. A{ZªJ nm gHo$Ÿ&
4. Measurement of Break-Even Point: If 4. ~«oH$-B©dZ nm°B§Q> H$s JUZm… Am°nao[Q>§J brdaoO
operating leverage is high, it automatically H$m CÀM hmoZm `h Xem©Vm h¡ {H$ \$_© H$mo ~«oH$-B©dZ nm°BÝQ>
means that the break-even point would also
be reached at a high level of sales. Also, in the VH$ nhþ±MZo Ho$ {b`o ^r A{YH$ {dH«$` H$s Amdí`H$Vm hmoJr
case of higher operating leverage, the margin VWm Eogr pñW{V _| _m{O©Z Am°\$ goâQ>r ^r H$_ hmoJmŸ& AV…
of safety would be low. Therefore, it is essential \$_© Ho$ {b`o AnZo {dH«$` Ho$ ñVa H$mo CÀM aIZm Amdí`H$
to operate sufficiently above break-even point
to avoid the danger of fluctuations in sales and h¡ V^r \$_© goëg Ed§ àm°{\$Q> _| CVma-M‹T>md Ho$ IVao go
profits. ~M gH$Vr h¡Ÿ& 
Q.41. What is meant by Financial Leverage? Explain its utility.
’$m¶Z|{e¶b brdaoO go ³¶m Ame¶ h¡? BgH$s Cn¶mo{JVm g‘PmB¶o&
OR
Write a short note on Financial Leverage. / ’$m¶Z|{e¶b brdaoO na g§{jßV {Q>ßnUr {b{IE&
OR
Explain the significance of Financial Leverage. / ’$m¶Z|{e¶b brdaoO H$m ‘hÎd g‘PmB¶o&
Financial Leverage \$m`ZopÝe`c brdaoO

Financial leverage relates to the financing \$m`ZopÝe`c brdaoO \$_© H$s \$m`ZopÝe`c
activities of a firm. The sources from which EpŠQ>{dQ>rO go g§~§pYV h¡Ÿ& do òmoV {OZgo H$moB© \$_©, \§$S>
funds can be raised by a firm, from the point of EH${ÌV H$a gH$Vr h¢ CÝh| bmJV AWdm ì`` H$s Ñ{ï> go
view of the cost/charge, can be categorized into: {ZåZ{b{IV lo{U`m| _| {d^º$ {H$`m Om gH$Vm h¡…
(i) Those which carry a fixed financial charge; (i) do òmoV {OZ na EH$ ñWm`r \$m`ZopÝe`c MmO© bJVm
and h¡; Ed§
(ii) Those which do not involve any fixed (ii) do òmoV {OZ na H$moB© {\$ŠñS> MmO© Zht h¡Ÿ&
charge.