Leverage analysis involves the examination of the relationship between:a.Earnings before interest and taxes (EBIT) and earnings per share (EPS)b.Debt and equity financingc.Cost of capital and weighted average cost of capital (WACC)d.Net income and operating income

Leverage analysis involves the examination of the relationship between:

a. Earnings before interest and taxes (EBIT) and earnings per share (EPS) This analysis is used to understand the effect of financial leverage on the earnings per share. It helps to determine how changes in EBIT affect the EPS. If the EPS increases with the increase in EBIT, the company has positive financial leverage. If the EPS decreases with the increase in EBIT, the company has negative financial leverage.

b. Debt and equity financing This analysis is used to understand the company's capital structure. It helps to determine the proportion of debt and equity used to finance the company's operations. A high level of debt can increase the financial risk, while a high level of equity can dilute the earnings per share.

c. Cost of capital and weighted average cost of capital (WACC) This analysis is used to understand the company's cost of financing. It helps to determine the average rate of return required by the company's creditors and shareholders. The WACC is the weighted average of the cost of debt and the cost of equity.

d. Net income and operating income This analysis is used to understand the company's profitability. It helps to determine the proportion of net income that is generated from the company's operating activities. A high level of operating income can indicate a strong operating performance, while a low level of net income can indicate a weak financial performance.