Question

If degree of operating leverage is 1.5 and degree of combined leverage is 3.5 than what degree of financial leverage

Answer 1

Answer:

Formula and Calculation of Degree of Operating Leverage

\begin{aligned} &DOL = \frac{\% \text{ change in }EBIT}{\% \text{ change in sales}} \\ &\textbf{where:}\\ &EBIT=\text{earnings before income and taxes}\\ \end{aligned}DOL=% change in sales% change in EBITwhere:EBIT=earnings before income and taxes

There are a number of alternative ways to calculate the DOL, each based on the primary formula given above:

\text{Degree of operating leverage} = \frac{\text{change in operating income}}{\text{changes in sales}}Degree of operating leverage=changes in saleschange in operating income

\text{Degree of operating leverage} = \frac{\text{contribution margin }}{\text{operating income}}Degree of operating leverage=operating incomecontribution margin 

\text{Degree of operating leverage} = \frac{\text{sales -- variable costs}}{\text{sales -- variable costs -- fixed costs}}Degree of operating leverage=sales – variable costs – fixed costssales – variable costs

\text{Degree of operating leverage} = \frac{\text{contribution margin percentage}}{\text{operating margin}}Degree of operating leverage=operating margincontribution margin percentage

Explanation:

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