If leverage can multiply earnings, it can also multiply risk. Having both high operating and financial leverage ratios can be very risky for a business.  A high operating leverage ratio illustrates that a company is generating few sales, yet has high costs or margins that need to be covered. This may either result in a lower income target or insufficient operating income to cover other expenses and will result in negative earnings for the company. On the other hand, high financial leverage ratios occur when the return on investment (ROI) does not exceed the interest paid on loans. This will significantly decrease the company’s profitability and earnings per share.