Financial gearing is the use of the financing costs in order to improve the EPS of the company. It
shows the percentage change in the EPS as a result of the changes in the EBIT. It’s measured using
the degree of financial leverage (DFL).
Operating gearing is the use of the operating costs in order to improve the profitability of the
company. It therefore shows the percentage change in the earnings before interest and tax (EBIT)
as a result of the changes in the sales. It’s calculated using the degree of operating leverage (DOL).
Kavungya answered the question on March 30, 2022 at 09:22
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