Wednesday, March 10, 2010

Is Variability of Returns Related to Accounting Risk?

Accounting Question: Is Variability of Returns Related to Accounting Risk?

Yes. Risk is the overall probability that a business activity will lead to an unfavorable result. The variability of returns is integrally related to this because it concerns the amount of return that a company may get from one of their investments.

For example, Degree of Operating Leverage  is a measure of business risk used by company's on their balance sheets,  Degree of Operating Leverage (DOL) demonstrates a small percentage change in a company's  sales can lead to a significant change on their EBIT or operating income that would not otherwise occur.

Additional Accounting Related Information on Financial Leverage and Variability of Returns:

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