Operating leverage and financial leverage are closely concerned with the firm's capacity to meet its fixed costs, both operating and financial. If both the leverages are combined, the result obtained will disclose the effect of change in sales over change in taxable profit. Combined leverage can also be called as composite leverage. It helps to find out the resulting change in taxable income due to change in sales. The following formula can be used to find out combined leverage: Combined leverage= Operating Leverage x Financial Leverage = 22 Contribution EBIT EBIT X EBT Contribution EBT The degree of combined leverage can also be calculated as follows: Percentage change in EPS DCL = Percentage change in sales Degree of combined leverage indicates the effect of change in sales on the earning per share. Illustration 3: The Income Statement of CRL Ltd. is given below: You are required to calculate (a) Operating leverage, (b) Financial leverage, and (c) Combined leverage. Income Statement for the year ended 31-12-2008 Rs. Sales 21,00,000 Variable cost 15,00,000 Fixed cost 1,00,000 Interest 1,40,000 Tax rate 33%