20XW 20XX 20XY 20XZ change in EBIT 34 44 23 49 change in sales 25 40 40 37 DOL 1.36 1.1 0.6 1.3 Degree of Financial Leverage (DFL) = operating profit/EBT 20XW 20XX 20XY 20XZ operating profit 1810 2604 3201 4767 Earning/income before taxes...

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Finance

20XW 20XX 20XY 20XZ
change in EBIT 34 44 23 49
change in sales 25 40 40 37
DOL 1.36 1.1 0.6 1.3
Degree of Financial Leverage (DFL) = operating profit/EBT
20XW 20XX 20XY 20XZ
operating profit 1810 2604 3201 4767
Earning/income before taxes (EBT) 1716 2402 2899 4333
DFL 1.05 1.08 1.10 1.10
DCL 1.43 1.19 0.63 1.46
Given is the companies DOL, DFL and DCL for20XW, 20XX, 20XY and 20XZ Discuss the risks of thecompany.

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3.8 Ratings (597 Votes)

Degree of operating leverage ContributionEBIT or change in EBITchange in sales Contributioncontributionfixed Cost If the degree of operating leverage is high the earnings before interest and taxes EBIT experiences volatility with respect to a percentage change in sales This means in the given question the percentage increase in sales from 20xw to 20xx is 32 ie let us assume the normal sale is 100 and the sale in 20xw is increased to 125 and the sale in 20xx is increased to 165 The percentage change in sales from 20xw to 20xx is 165125125100 32 See Answer

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20XW20XX20XY20XZchange in EBIT34442349change in sales25404037DOL1.361.10.61.3Degree of Financial Leverage (DFL) = operating profit/EBT20XW20XX20XY20XZoperating profit1810260432014767Earning/income before taxes (EBT)1716240228994333DFL1.051.081.101.10DCL1.431.190.631.46Given is the companies DOL, DFL and DCL for20XW, 20XX, 20XY and 20XZ Discuss the risks of thecompany.

	20XW	20XX	20XY	20XZ
change in EBIT	34	44	23	49
change in sales	25	40	40	37
DOL	1.36	1.1	0.6	1.3

	Degree of Financial Leverage (DFL) = operating profit/EBT
	20XW	20XX	20XY	20XZ
operating profit	1810	2604	3201	4767
Earning/income before taxes (EBT)	1716	2402	2899	4333
DFL	1.05	1.08	1.10	1.10

DCL	1.43	1.19	0.63	1.46