Sales Revenue (px)

(-) Variable Cost (pv)

Operating
Contribution Margin
Total Leverage

(-) Fixed Cost (F0) Leverage

Earnings Before Interest and Taxes EBIT)
(-) Interest
Earnings Before Tax (EBT)
Tax (40%) Financial
EAT
Leverage
Dividend of Preferred stock
Earnings available for shareholders
÷ No. of Shares outstanding
EPS
 % c h ange ∈EBIT
Degree of Operating Leverage (DOL) = % C h ange∈sales
∆ EBIT ∆ X ∆ EBIT X ∆[ X ( p−v )−F 0] X ∆ X ( p−v )−∆ F 0 X
= EBIT
÷
X = EBIT X ∆X = X ( p−v )−F 0
X ∆X = X ( p−v )−F 0
X ∆X

∆ X ( p−v ) −0 X ∆ X ( p−v ) X X ( p−v ) EBIT + F 0

= X ( p−v )−F 0
X ∆X = X ( p−v )−F 0
X ∆X = X ( p−v )−F 0
= EBIT

EBIT = X ( p−v )−F 0 = EBIT+F0

∆X
% C h ange∈ sales = X Total sales Revenue = p×X

Price per unit =p

Total variable cost = p X v

V= Variable cost per unit

Total fixed cost is fixed but per unit fixed cost is not fixed whereas per unit

variable cost is fixed but total variable cost is not fixed.

Suppose the total fixed cost of producing 1000 pen of ABC company is

10,000. The variable cost of producing the pen is 5 taka per unit.

Per unit fixed cost = 10,000/1000= 10

Total variable cost = 5X1000 = 5000

Total cost = 10,000+5000 = 15000 = 15

Per unit fixed cost = 10,000/500= 20

Total variable cost = 5X500 = 2500

Total cost = 10,000+2500 = 12500/500= 25

Economies of scale: Means decrease in per unit cost resulting from

increasing in total production.

% Change∈EPS
Degree of Financial Leverage (DFL) = % Change∈EBIT

EBIT x ( p−v ) −F 0
= EBIT−Ff = x ( p−v )−F 0−Ff

Ff = Fixed Financial
Degree of total Leverage = DOL X DFL

Cost (Interest)

% Change∈ EPS
Total Leverage = % Change∈ Sales
 % Change∈ EPS
Or, 2.18 = 20 %

Or, % Change in EPS = 43.6%

EPS ' −EPS

Or, EPS
=.436

EPS ' −3
Or, 3
= .436

Or, EPS' −3 = 1.308

Or, EPS' = 1.308+3 = 4.31 13,00,000/200 = 6500

200 ( 10,000−6500 )
g. DOL = 200 (10,000−6500 )−3,00,000

7,00,000
= 4,00,000 = 1.75

∴ DCL/DTL = DOL x DFL = 1.75 x 1.25 = 2.18