Describe the way in which earnings per share responds to changing EBIT in a firm with

a. No fixed financing costs. A firm with no fixed financing costs has no financial leverage. In such a firm, earnings per share will rise and fall with EBIT by the same percentage. For example, a 15% increase in EBIT will result in a 15% increase in EPS; a 9% decrease in EBIT will result in a 9% decrease in EPS.

b. Some fixed financing costs. A firm with some fixed financing costs does have financial leverage. In such a firm, earnings per share will rise and fall with EBIT by a greater percentage. For example, a 15% increase in EBIT will result in a more-than-15% increase in EPS; a 9% decrease in EBIT will result in a more-than-9% decrease in EPS.