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Summary

Operating and financial leverage are important ingredients in determining the success or demise of many companies. Firms acquire leverage to bolster their financial position, thus increasing shareholder value. However, with increased leverage comes increased risk. Managers, analysts, shareholders, and creditors must be very clear about the implications of the risks associated with a firm's operating and financial leverage to make investment decisions. Knowing these implications brings their decisions in line with their desired level of risk.


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