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Leverage Analysis Case Study

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You are supplied with the following analytical income statement for your firm. It reflects last year's operations. (see attachment in Word)

a. At this level of output, what is the degree of operating leverage?

b. What is the degree of financial leverage?

c. What is the degree of combined leverage?

d. If sales should increase by 15 percent, by what percent would earnings before taxes (and net income) increase?

e. What is your firm's break-even point in sales dollars?

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The expert provides a leverage analysis for a case study.

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Answer (a) : At this level of output, what is the degree of operating leverage?

DOL = Revenue before fixed cost/EBIT
=$11,000,000/$5,000,000
= 2.2 times

Answer (b) What is the degree of financial ...

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