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Fundas : Understanding Operating Leverage

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Leverage amplifies the profitability of companies. First thing that comes to mind when one speaks of leverage is the debt that the company has on its balance sheet - the company takes on debt to fund its assets and grow its business. This is called Financial Leverage. This sits on the liability side of the balance sheet - long and short term borrowings.

One would have come across companies where sales are growing say at 10%, however operating profits or EBIT is growing much faster . . .

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