Question

From the following information calculate combined leverage, financial leverage & operating

leverage:

Particulars

Amount

Particulars

Amount

Sales

Interest

150,000/-

8500/-

Variable Cost

Fixed Cost

45,000/-

25,000/-.​

Answer 1

Explanation:

Particulars

Amount

Particulars

Amount

Sales

Interest

150,000/-

8500/-

Variable Cost

Fixed Cost

45,000/-

25,000/-.

Answer 2

Given:

Sales 150000

Interest 8500

Variable Cost 45000

Fixed Cost 25000

To Find:

From the following information calculate combined leverage, financial leverage & operating

Solution:

                                         Statement of cost

Particulars                                                         Amount(Rs)

Sales                                                                   150000

Less: variable cost                                              45000

Contribution                                                        105000

less: fixed cost                                                     25000

earnings before interest and tax(EBIT)               80000

less: interest                                                          8500

Earnings before tax(EBT)                                    71500

Now calculating the Operating leverage,

$OL=\frac{contribution}{EBIT}\\=\frac{105000}{80000} \\=1.3125$

Now calculating the Financial leverage,

$FL=\frac{EBIT}{EBT}\\=\frac{80000}{71500} \\=1.1188$

Now calculating the Combined leverage

$CL=\frac{Contribution}{EBT}\\=\frac{105000}{71500}\\=1.4685$

We can also calculate combined leverage as operating leverage times financial leverage,

$CL=OL*FL\\=1.3125*1.1188\\=1.4685$

Hence, the value combined leverage, financial leverage and operating leverage are 1.3125, 1.1188 and 1.4685 respectively.