Difference Between Operating Leverage And Financial Leverage

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.