Abstract:
In present era competitive world having business is very important to identiff relationship
between operating and financial leverage. Because of Should a business increase or reduce
the number of units it is producing, should it rely more or less heavily on borrowed money,
the answer depends upon how a change would affect risk and return. Operating leverage is
the name given to the impact on operating income of a change in the level of output.
Financial leverage is the name given to the impact on returns of a change in the extent to
which the firm's assets are financed with borrowed money.
Financial leverage plays an important role to make a control over the financial statement
of the organization. Operating leverage represents an important decision variable at all
stages of product manufacturing and sales. Secondary data collection method was used in
this research. From 2015 to 2019 was gathered for the analysis from the annual reports of
twenty (20) listed companies on the Colombo Stock Exchange. Measures of operating
leverage were examined and related to proxies for efficient financial management by listed
companies. There were286 listed companies on Colombo Stock Exchange and 20
companies were selected as sample using random sampling method.
Further collected data were analyzed by using the STATA- 15 package for interpreting and
obtaining conclusion. The main objective of this study is determining the relationship
between financial leverage and operating leverage of listed companies in Sri Lanka. The
overall research findings indicate that there is a significant negative relationship between
financial leverage and operating leverage. Findings of this research help to make effective
decision of related parties.
