What is meant by the term leverage? How are operating leverage, financial leverage, and total leverage related to the income statement?
In financial analysis:
Leverage means the influence of one
financial variable over some other related financial variable.
These financial variables can be sales, contribution, variable or fixed costs, Earnings Before Interest and Tax, Earning per share.
operating leverage, financial leverage, and total leverage are
related to the income statement because it shows the effect of one
variable/component of income statement on another
variable/component of the income statement.
It can be understood clearly from these formulas.
operating leverage= Contribution/EBIT
financial leverage= EBIT/EBT
total leverage= Contribution/EBT
Contribution=sales- variable cost.
EBIT= earnings before interest and tax.
EBT= earnings before tax.
The above 3 are variable/component of the income statement.
As one the financial consultant, evaluate the above passage on capital structure and advise the board of director according
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What is meant by the term leverage? How are operating leverage, financial leverage, and total leverage...
What is meant by the term "operating leverage"? Is high operating leverage a positive or negative position?
what is meant by financial leverage? How does financial leverage influence the level of financial risk?
2. What is operating leverage? How, if at all, is it similar to financial leverage? If a firm has high operating leverage would you expect it to have high or low financial leverage? Explain your reasoning. Please also add to your answer an example of where an HR manager may use operating leverage to his or her advantage.
What is meant by the term, 'leverage', and why is it important to managers? What are some examples of some companies or industries that would tend to be more highly leveraged? Which ones might be less leveraged? Why do you think this is the case?
13.What is the degree of operating leverage? 14.Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? 15.Assume that the amounts of the company’s total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $8,400 and the total fixed expenses are $21,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating...
13.What is the degree of operating leverage? 14.Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? 15.Assume that the amounts of the company’s total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $8,400 and the total fixed expenses are $21,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating...
reflects last year’s operations:Sales $18,000,000Variable costs 7,000,000Revenue before fixed costs $11,000,000Fixed costs 6,000,000EBIT $5,000,000Interest expense 1,750,000Earnings before taxes (EBT) $3,250,000Taxes 1,250,000Net income $2,000,000REQUIRED:1. At this level of output, what is the degree of operating leverage?2. What is the degree of financial leverage?3. What is the degree of combined leverage?4. If sales increase by 15%, by what percent would EBT (and net income) increase?5. What is your firm’s break-even point in sales dollars?
How can I determine current DOL (degree of operating leverage), DFL (degree of financial leverage), and DCL (degree of combined leverage)? If maximization of earning per share is the goal, what is the indifference EBIT (EBIT*)? Also, Once the expansion is completed, the sales are expected to increase to $5,000,000. How can I calculate the new EBIT. At the new EBIT which method of financing results in a higher EPS? Calculate EPS for both plans at this new EBIT. new...
1. What is the company’s degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 18% increase in sales. 3. Construct a new contribution format income statement for the company assuming a 18% increase in sales. Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income Amount $ 143.000 57,200 85,800 21,000...
We calculate financial leverage as follows. Financial Leverage =Total Asset/ Equity Financial Leverage = Total Assets/Share Holders Equity Which one is correct or most acceptable?