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  • Sales Less: VC Contribution Less: FC Ebit Less: Interest EBT Less: Tax PBT

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    srishti purohit
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    This document discusses various financial metrics used to analyze companies, including operating leverage (OL), financial leverage (FL), combined leverage (CL), and degree of operating leverage (DOL). It provides examples calculating these metrics in different scenarios: 1) OL measures contribution to EBIT and is higher when there are fewer fixed costs. FL measures EBIT to EBT and is higher with more debt/interest. 2) CL is the product of OL and FL, showing overall leverage. It is higher when there are fewer fixed costs and more debt. 3) DOL measures the percentage change in EBIT for a 1% change in sales, showing how sensitive profits are to sales fluctuations.

    Original Description:

    leverage analysis

    Original Title

    Leverage

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    This document discusses various financial metrics used to analyze companies, including operating leverage (OL), financial leverage (FL), combined leverage (CL), and degree of operating leverage (DOL). It provides examples calculating these metrics in different scenarios: 1) OL measures contribution to EBIT and is higher when there are fewer fixed costs. FL measures EBIT to EBT and is higher with more debt/interest. 2) CL is the product of OL and FL, showing overall leverage. It is higher when there are fewer fixed costs and more debt. 3) DOL measures the percentage change in EBIT for a 1% change in sales, showing how sensitive profits are to sales fluctuations.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    33 views6 pages

    Sales Less: VC Contribution Less: FC Ebit Less: Interest EBT Less: Tax PBT

    Uploaded by

    srishti purohit
    This document discusses various financial metrics used to analyze companies, including operating leverage (OL), financial leverage (FL), combined leverage (CL), and degree of operating leverage (DOL). It provides examples calculating these metrics in different scenarios: 1) OL measures contribution to EBIT and is higher when there are fewer fixed costs. FL measures EBIT to EBT and is higher with more debt/interest. 2) CL is the product of OL and FL, showing overall leverage. It is higher when there are fewer fixed costs and more debt. 3) DOL measures the percentage change in EBIT for a 1% change in sales, showing how sensitive profits are to sales fluctuations.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 6

    Sales

    Less: VC
    Contribution
    Less: FC
    EBIT
    Less: Interest
    EBT
    Less: Tax
    PBT
    Case No FC
    Units 1000 1000 1000
    Sales (10/ unit) 10000 10000 10000
    Less: VC (6/ unit) 6000 6000 6000
    Contribution 4000 4000 4000
    Less: FC 2000 0 2000
    EBIT 2000 4000 2000

    OL= Contribution/EBIT 2 1 2

    OL = 1, if no FC exist

    EBIT 2000 4000 100%


    Less: Interest 200 200
    EBT 1800 3800 111.11%
    Less: Tax (30%) 540 1140 111.11
    PAT 1260 2660 111.11%

    FL= EBIT/EBT 1.11111111 1.052632

    DFL = %change in EBT/PAT/EPS/% change in EBIT 1.11

    Combined leverage = OL*FL 2.22222222 1.4


    CL = Contribution/EBT 2.22222222

    Case
    Units 1000 1200 given
    Sales (10/ unit) 10000 12000
    Less: VC (6/ unit) 6000 7200 OL 2
    Contribution 4000 4800
    Less: FC 2000 2000
    EBIT 2000 2800
    Less: Interest 1000 1000 FL 2
    EBT 1000 1800
    Less: Tax (40%) 400 720
    PAT 600 1080
    CL 4
    Increase in number of
    units % Increase Units % increase HIGH FC
    2000 100% 3000
    20000 100%
    12000 100%
    8000 100%
    2000
    6000 200
    1.33
    (at what level?)

    DOL= % change in EBIT/


    % change in
    sales/VC/Contribution 2 a 1% change in sales will cause 2% change in EBIT

    CAN DOL BE O or less than 1?

    Increment in sales?

    increase in PAT (target)- 6%


    Case
    Units 300
    Sales (10/ unit) 3000
    Less: VC (6/ unit) 1800
    Contribution 1200
    Less: FC 2000
    EBIT -800

    OL = Contribution/EBIT -1.5
    600 800 1000 2000 3000 4000 #REF! #REF! #REF!
    6000 8000 10000 20000 30000 40000
    3600 4800 6000 12000 18000 24000
    2400 3200 4000 8000 12000 16000
    2000 2000 2000 2000 2000 2000
    400 1200 2000 6000 10000 14000

    6 2.666667 2 1.333333 1.2 1.142857


    Sr. No. Situation Result
    1 No Fixed CoNo Combined leverage
    2 Higher FixeHigher Combined Leverage
    3 Sales level Positive combined leverage
    4 Sales leverNegative Combined leverage

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