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    Excel - Operating Leverage

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    The Harley Health Club has asked you to review aspects of its financial condition, specifically its break even point and its use of leverage.

    Management has supplied you with the following company information, along with corresponding data for the industry.

    Harley Industry

    Price per Unit $500.00 $525.00
    Unit Sales (Memberships) 420,000 450,000
    Interest expense $1,000,000 $2,000,000
    Variable Costs (% Sales) 55.00% 58.00%
    Fixed Costs $65,000,000 $55,000,000
    Common Shares 5,000,000 7,000,000

    Taxes 36.00% 36.00%

    Use the following headings for your comparison:

    Harley Industry

    Sales
    Less: Variable Costs
    Less: Fixed Costs
    EBIT
    Less: Interest Expense
    Earnings before Taxes
    Taxes
    Net Income

    Earnings per Share

    Break-even Point (Units)
    Break-even Point ($)

    Degree of Operating Leverage
    Degree of Financial Leverage
    Degree of Combined Leverage

    Are there any significant financial changes you would suggest to management as a result of this analysis?

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    https://brainmass.com/business/finance/excel-operating-leverage-125963

    Solution Preview

    Harley Industry

    Sales $210,000,000.00 $236,250,000.00
    Less: Variable Costs $115,500,000.00 $137,025,000.00
    Contribution $94,500,000.00 $99,225,000.00
    Less: Fixed Costs $65,000,000 $55,000,000
    EBIT $29,500,000.00 $44,225,000.00
    Less: Interest Expense $1,000,000 $2,000,000 ...

    Solution Summary

    The solution reviews aspects of Harley Health Club financial conditions and discusses its break even point and its use of leverages.

    $2.19

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