The impact of financial leverage on the profitability of a business can be seen through:

EBIT-EPS analysis

The correct answer is option 1- EBIT-EPS analysis.

The impact of financial leverage on the profitability of a business can be seen through EBIT-EPS analysis.

Financial leverage- The proportion of debt in the overall capital is also called financial leverage. Financial leverage is computed as D/E or D/D + E when D is the Debt and E is the Equity. As the financial leverage increases, the cost of funds declines because of increased use of cheaper debt but the financial risk increases. The impact of financial leverage on the profitability of a business can be seen through EBIT-EPS.