Editing Openai/68df4a3a-428c-8013-a459-5cff8e17edde (section)

=== Assistant: Alright, let’s make these concepts super simple — baby terms 😃. ===
Alright, let’s make these concepts super simple — baby terms 😃.

==== Leverage just means using something extra to make your results bigger. ====
* Like using a seesaw: a small push can lift something heavy.
* In business, leverage means using fixed costs or borrowed money to make profits go up faster when sales increase.

But ⚠️ leverage cuts both ways: it makes losses bigger too if sales drop.

==== - This is about fixed business costs (like rent, machines, salaries). ====
* If you have high fixed costs, a small increase in sales can make profits grow a lot (because those costs don’t change).
* Example: - A factory with expensive machines (fixed cost) benefits more from each extra sale than a lemonade stand (low fixed cost).
* Baby version: Operating leverage is how much your “stuff costs the same no matter what” makes small sales changes turn into big profit changes.

==== - This is about borrowing money (debt). ====
* When a company uses debt, it must pay interest.
* If profits are high, shareholders earn even more (since they didn’t put in all the money themselves).
* If profits are low, debt makes losses worse (since interest still needs to be paid).
* Baby version: Financial leverage is like using a loan to buy more toys — if the toys make money, you’re richer; if they don’t, you still owe the bank.

==== - This is the combo of operating leverage + financial leverage. ====
* It shows how sensitive the company’s earnings for shareholders are to changes in sales.
* Baby version: Total leverage is the “double seesaw” — fixed costs (operating) + borrowed money (financial) together make profits move up and down faster when sales change.

==== - Operating leverage = effect of fixed costs. ====
* Financial leverage = effect of debt.
* Total leverage = both together → how sales changes supercharge profits or losses.

Do you want me to also make a cute real-life analogy (like a lemonade stand example) to show how all three types of leverage work at once?