Operating Leverage is a method using which operating income of an organisation can be increased by incresing revenue of the entity. It includs sales at high margin and trying to lowering the variable cost.
No, it is not similar to financial leverage. Financial Leverage is a method using which return to equity can be increased. It happen by taking debts. High financial leverage is also an risk for an organisation.
No, having high operating leverage can't reflect high or law leverage. because operating leverage dont contain figure of financial cost paid to debts. Operating leverage is calculated from operating income which is calculated after deducting exp which are variable to the revenue.
2. What is operating leverage? How, if at all, is it similar to financial leverage? If...
2. Provide an example of a business or industry that has high operating leverage and one that has low operating leverage and explain why the operating leverage is high or low in each case.
Companies often use leverage to augment profits. Based on what you learned this week, please explain the following in detail: With regards to Operating Leverage, please explain why a company with HIGH Operating Leverage faces greater financial risk in a declining sales period compared to a company with LOW Operating Leverage. (HINT: The key here is the relation between fixed costs and variable costs.) What does a business's Contribution Margin represent? What does the Contribution Margin have to do with...
If a firm increases its use of both operating and financial leverage, then you should expect the firm's: a. asset beta to exceed its equity beta. b. beta of debt to exceed 1.0. c. beta to remain constant as the increased operating leverage will offset the increased financial leverage. d. equity beta to increase. e. debt beta to exceed its equity beta.
Financial leverage is a measure of the amount of debt used in the capital structure of the firm. While operating leverage primarily pertains to the left-hand side of the balance sheet (assets and associated costs), financial leverage deals with the right-hand side of the balance sheet (liabilities and net worth). Explain why two firms may have the same operating income but greatly different net incomes.
Firms in Japan often employ both high operating and financial leverage because of the use of modern technology and close borrower-lender relationships. Assume the Mitaka Company has a sales volume of 136,000 units at a price of $26 per unit; variable costs are $6 per unit, and fixed costs are $1,910,000. Interest expense is $411,000. What is the degree of combined leverage for this Japanese firm? (Round your answer to 2 decimal places.) Degree of combined leverage
Integrative-Leverage and risk Firm R has sales of 97,000 units at $2.03 per unit, variable operating costs of $1.67 per unit, and fixed operating costs of $6,070. nterest is $10,080 per year. Firm W has sales of 97,000 units at $2.56 per unit, variable operating costs of $0.97 per unit, and fixed operating costs of $62,400 Interest is $17,200 per year. Assume that both firms are in the 40% tax bracket. a. Compute the degree of operating, financial, and total...
What are some potential advantages and disadvantages of operating with a high leverage and debt ratio? (7) Explain why P/E ratio and EPS are used in determining health of a stock? Is it good to have a low EPS ratio? Why or why not? (8)
Firms in Japan often employ both high operating and financial leverage because of the use of modern technology and close borrower lender relationships. Assume the Mitaka Company has a sales volume of 135,000 units at a price of $30 per unit: variable costs are $9 per unit and fixed costs are $1,900,000. Interest expense is $410,000. What is the DCL for this Japanese firm? (Round the final answer to 2 decimal places.) Degree of combined leverage DI)
What factors would cause a difference in the use of financial leverage for a utility company and an automobile company? Also, please discuss the limitations of financial leverage.
Break-even, Financial and Operating Leverages Johnson Products, Inc. Income Statement For the Year Ended December 31, 2018 Sales (40,000 bags at $50 each) .................................. $2,000,000 Less: Variable costs (40,000 bags at $25)................ 1,000,000 Fixed costs.............................................................. 600,000 Earnings before interest and taxes .............................. 400,000 Interest expense ........................................................... 120,000 Earnings before taxes ................................................. 280,000 Income tax expense (20%) .......................................... 56,000 Net income .................................................................. $ 224,000 Based on the information above, calculate (show all calculations and responses in good form):...