In general, leverage refers to accomplish certain things which are otherwise not possible
i.e. lifting of heavy objects with the help of lever. This concept of leverage is valid in business also.
In finance, the term ‘leverage’ is used to describe the firm’s ability to use fixed cost asset or funds to increase the return to its owners; i.e. equity share holders. In other words, the fixed cost funds i.e. debentures & preference share capital act as the fulcrum, which assist the lever i.e. the firm to lift i.e. to increase the earnings of its owner i.e. the equity shareholders.
Leverage is also the influence which an independent variable has over a dependent/related variable i.e. rainfall over production. In financial context, sales& fixed cost over profit.
Leverages one of the most difficult to understand and interpret in financial management.. Here's a short explanation with calculation of financial and operating leverages..
Leverages one of the most difficult to understand and interpret in financial management.. Here's a short explanation with calculation of financial and operating leverages..
This PPT contains the full detail of topic leverage in financial management
it covers following topics :-
Meaning of Leverage
Types of Leverage
Operating Leverage
Financial Leverage
Difference between Operating & Financial Leverage
Combined Leverage
Illustrations
Exercise
Definition of leverage, Types of Leverages, meaning of operating leverage, financial leverage, combined leverage, Formulas for Operating and financial leverage, variable cost, fixed cost, EBIT, Contribution, EPS-EBIT Analysis, Income statement, practical problems on leverages, etc.
Explain the concept of financial leverage.
Discuss the alternative measures of financial leverage.
Understand the risk and return implications of financial leverage.
Analyse the combined effect of financial and operating leverage.
Highlight the difference between operating risk and financial risk.
This is an Assignment done on normal understanding of Operating Leverage, Financial Leverage & Total Leverage, and the relevant calculation formulas and implications.
DEFINITION of 'Leverage'
1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.
2. The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged.
Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.
Discuss the methods of estimating beta.
Explain the market model for calculating beta.
Examine the difference between betas of individual firms and the industry beta.
Highlight the beta instability.
Explain the determinants of beta.
Show the use of beta in determining the cost of equity.
This PPT contains the full detail of topic leverage in financial management
it covers following topics :-
Meaning of Leverage
Types of Leverage
Operating Leverage
Financial Leverage
Difference between Operating & Financial Leverage
Combined Leverage
Illustrations
Exercise
Definition of leverage, Types of Leverages, meaning of operating leverage, financial leverage, combined leverage, Formulas for Operating and financial leverage, variable cost, fixed cost, EBIT, Contribution, EPS-EBIT Analysis, Income statement, practical problems on leverages, etc.
Explain the concept of financial leverage.
Discuss the alternative measures of financial leverage.
Understand the risk and return implications of financial leverage.
Analyse the combined effect of financial and operating leverage.
Highlight the difference between operating risk and financial risk.
This is an Assignment done on normal understanding of Operating Leverage, Financial Leverage & Total Leverage, and the relevant calculation formulas and implications.
DEFINITION of 'Leverage'
1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.
2. The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged.
Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.
Discuss the methods of estimating beta.
Explain the market model for calculating beta.
Examine the difference between betas of individual firms and the industry beta.
Highlight the beta instability.
Explain the determinants of beta.
Show the use of beta in determining the cost of equity.
In general ,leverage refers to accomplish certain things which are otherwise not possible i.e. lifting of heavy objects with the help of lever. This concept of leverage is valid in business also .
In finance ,the term ‘leverage’ is used to describe the firm’s ability to use fixed cost assets or funds to increase the return to its owners; i.e. equity shareholders. In other words, the fixed cost funds i.e. debentures & preference share capital act as the fulcrum , which assist the lever i.e. the firm to lift i.e. to increase the earnings of its owner i.e. the equity shareholders.
If earnings less the variable costs exceed the fixed costs i.e. preference dividend & interest on debenture, or earnings before interest and taxes exceed the fixed return requirement, the leverage is called favourable . when they do not ,the result is unfavourable leverage .
Leverage is also the influence which an independent variable has over a dependent/related variable i.e. rainfall over production. In financial context, sales & fixed cost over profit
A Scale is a tool or mechanism by which individuals are distinguished as to how they differ from one another on the variables of interest to our study. The scale or tool could be a gross one in the sense that it would only broadly categorize individual on certain variables, or it could be a fine-tuned tool that would differentiate individual on the variables with varying degrees of sophistication.
There are four basic type of scale:
Nominal
Ordinal
Interval
ratio
A nominal scale is one that allows the researcher to assign subjects to certain categories or group.
For example, With respect to the variable of gender, respondents can be grouped into two categories– Male and Female, These two group can be assigned code number 1 and 2.
Nominal Scales categorize individuals or objects into mutually excusive and collectively exhaustive groups.
Other Example: Blues Eyes=1, Brown eyes=2, Black eyes=3.
An ordinal scale not only categorizes the variables in such a way as to denotes differences among the various categories, it also rank-order the categories in some meaningful way. With any variables for which the categories are to be ordered according to some preference, the ordinal scale would be used. The preference would be ranked (e.g. from best to worst; first to last) and numbered 1,2 and so on.
Example:
Very satisfied
Some satisfied
Neutral
Somewhat dissatisfaction
Very dissatisfaction
An interval scale allows us to perform certain arithmetical operation on the data collected from the respondents.
Interval scale lets us measure the distance between any two points on the scale. This helps us to compute the means and the standards deviation of the responses on the variables.
In other words, the interval scale not only groups individual according to certain categories and taps the order of these groups it also measures the magnitude of the differences in the preference among the individuals.
Example: Celsius temperature is an interval variables. It is meaning ful to say that 25 degrees Celsius is hotter then 22 degrees.
COMPANY ANALYSIS: PATANJALI
In the present scenario, the market of ‘Wellness Industry’ in India is less than 2% as compared to the international market. There are untapped opportunities in the wellness industry because of which the government has given special focus on this sector in the ‘Make in India’ campaign. Active involvement from private and public players can create huge impact and buzz in the global market. The motives are the expansion and spreading the awareness and usability.
Patanjali Ayurveda is maker of ayurvedic consumer products and is one of the fastest growing consumer companies in India. The company was formed by Baba Ramdev in 1997 in collaboration with Acharya Balkrishna (scholar of Ayurveda, Sanskrit and Vedas) to manufacture ayurvedic medicines. Ramdev has focused on Yoga while Balkrishna is spreading and channelizing Ayurvedic products.
The company provides a bunch of products and services which revolves around the consumer needs. Providing them high-quality products at attractive prices is the USP. It has become a household name. The company sources raw materials directly from farmers to cut middlemen cost for increasing profits.
What is ISO 9000?
Quality is something every company strives for and is often times very difficult to achieve. Complications concerning efficiency and quality present themselves everyday in business, whether an important document cannot be found or a consumer finds a product not up to their expectations. How can a company increase the quality of its products and services?
(The answer is ISO 9000)
Work of ISO 9000.
ISO 9000 is set up as a collection of guidelines that help a company establish, maintain, and improve a quality management system. It is important to stress that ISO 9000 is not a rigid set of requirements, and that organizations have flexibility in how they implement their quality management system. This freedom allows the ISO 9000 standard to be used in a wide range of organizations, and in businesses large and small.
ISO stands for International Organizational for Standardization. It is an international body which consists of representatives from more than 90 countries. The national standards bodies of these countries are the member of this organization.
BIS(Bureau of Indian Standards) is the Indian representatives to ISO.
ISO and IEC(International Electro Technical Commission) operate jointly as a single.
These are NGO Which exist to provide common standard on international trade of goods and services.
ISO 9000 series has five international standards on quality management which are listed below:
ISO 9000
ISO 9001
ISO 9002
ISO 9003
ISO 9004
Financial statement analysis is the process of reviewing and evaluating a company's financial statements (such as the balance sheet or profit and loss statement), thereby gaining an understanding of the financial health of the company and enabling more effective decision making. Financial statements record financial data; however, this information must be evaluated through financial statement analysis to become more useful to investors, shareholders, managers and other interested parties.
The meaning and significance of price
It is not easy to define “Price” but whenever the price of a product is quoted, it is related to some assortment of goods and services. So, Price is what is charged for “Something”. That something is generally value of the product attributes or utilities value of the product or services.
Hypothesis is a hunch the researcher or research team has. Basically a hypothesis is nothing more or less than a hunch to solve your research problem.
A good hypothesis by adding predictions on the how or why. So use sentences that include variations. If one cannot assess the predictions by observation or by experience, the hypothesis classes as not yet useful, and must wait for others who might come afterward to make possible the needed observations. For example, a new technology or theory might make the necessary experiments feasible.
The Human Resource (HR) function of organizations is changing rapidly, reacting to a changing social and organizational environment and rapidly evolving information technologies. Social and organizational changes exert pressure on HR professionals to provide expanded services, of a higher quality, faster, and seamlessly linked with other corporate functions. Information technologies (IT), which provide enabling technologies to assist HR professionals in the delivery of services, have also simultaneously increased the expectations that employees, managers, customers, suppliers, and regulators have for the HR function.
Vogel’s Approximation Method (VAM),
Step-I: Compute the penalty values for each row and each column. The penalty will be equal to the difference between the two smallest shipping costs in the row or column.
Step-II: Identify the row or column with the largest penalty. Find the first basic variable which has the smallest shipping cost in that row or column. Then assign the highest possible value to that variable, and cross-out the row or column which is exhausted.
Step-III: Compute new penalties and repeat the same procedure until all the rim requirements are satisfied.
Step 1: Compute the penalties in each row and each column .
Step 2: Identify the largest penalty and choose least cost cell to corresponding this penalty.
Step-3: Allocate the amount 5 which is minimum of corresponding row supply and column demand and then cross out column2.
Step-4: Recalculate the penalties.
Step-5: Identify the largest penalty and choose least cost cell to corresponding this penalty.
Step-6: Allocate the amount 5 which is minimum of corresponding row supply and column demand, then cross out column3.
Step-7: Finally allocate the values 0 and 15 to corresponding cells and cross out column 1\
Solution of the problem.
Now the Initial Basic Feasible Solution of the transportation problem is
X11=0, X12=5, X13=5, and X21=15 and
Total transportation cost = (0x6)+(5x7)+(5x8)+(15x15) = 0+35+40+225
= 300.
Role of Entrepreneur's in economic development and role of women entrepreneur's.Jaikumar Pandit
What is Entrepreneur??
• Entrepreneur is a person who takes initiative or one who come up with an idea that helps to create new jobs, encourage society and disperse wealth because of new products or services that are introduced into the market. This gives great impact to each and every individual as some ways or the other, we all get correlated.
For example, with the introduction of Uber rides it gave great impacts on an auto rickshaw and local buses whereas millions of people got job car driver to make that Uber ride possible.
i. It is the application of scientific methods, techniques and tools to problems involving the operations of a system so as to provide those in the control of the system with optimum solutions to the problems.
ii. Operation Research is a tool for taking decisions which searches for the optimum results in parity with the overall objectives and constraints of the organization.
iii. Operations research (OR) is an analytical method of problem-solving and decision-making that is useful in the management of organizations. In operations research, problems are broken down into basic components and then solved indefined steps by mathematical analysis.
P&G is one of the largest and amongst the fastest growing consumer goods companies in India. Established in 1964, P&G India now serves over 650 million consumers across India. Its presence pans across the Beauty & Grooming segment, the Household Care segment as well as the Health & Well Being segment, with trusted brands that are household names across India.
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
Latino Buying Power - May 2024 Presentation for Latino CaucusDanay Escanaverino
Unlock the potential of Latino Buying Power with this in-depth SlideShare presentation. Explore how the Latino consumer market is transforming the American economy, driven by their significant buying power, entrepreneurial contributions, and growing influence across various sectors.
**Key Sections Covered:**
1. **Economic Impact:** Understand the profound economic impact of Latino consumers on the U.S. economy. Discover how their increasing purchasing power is fueling growth in key industries and contributing to national economic prosperity.
2. **Buying Power:** Dive into detailed analyses of Latino buying power, including its growth trends, key drivers, and projections for the future. Learn how this influential group’s spending habits are shaping market dynamics and creating opportunities for businesses.
3. **Entrepreneurial Contributions:** Explore the entrepreneurial spirit within the Latino community. Examine how Latino-owned businesses are thriving and contributing to job creation, innovation, and economic diversification.
4. **Workforce Statistics:** Gain insights into the role of Latino workers in the American labor market. Review statistics on employment rates, occupational distribution, and the economic contributions of Latino professionals across various industries.
5. **Media Consumption:** Understand the media consumption habits of Latino audiences. Discover their preferences for digital platforms, television, radio, and social media. Learn how these consumption patterns are influencing advertising strategies and media content.
6. **Education:** Examine the educational achievements and challenges within the Latino community. Review statistics on enrollment, graduation rates, and fields of study. Understand the implications of education on economic mobility and workforce readiness.
7. **Home Ownership:** Explore trends in Latino home ownership. Understand the factors driving home buying decisions, the challenges faced by Latino homeowners, and the impact of home ownership on community stability and economic growth.
This SlideShare provides valuable insights for marketers, business owners, policymakers, and anyone interested in the economic influence of the Latino community. By understanding the various facets of Latino buying power, you can effectively engage with this dynamic and growing market segment.
Equip yourself with the knowledge to leverage Latino buying power, tap into their entrepreneurial spirit, and connect with their unique cultural and consumer preferences. Drive your business success by embracing the economic potential of Latino consumers.
**Keywords:** Latino buying power, economic impact, entrepreneurial contributions, workforce statistics, media consumption, education, home ownership, Latino market, Hispanic buying power, Latino purchasing power.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
Empowering the Unbanked: The Vital Role of NBFCs in Promoting Financial Inclu...Vighnesh Shashtri
In India, financial inclusion remains a critical challenge, with a significant portion of the population still unbanked. Non-Banking Financial Companies (NBFCs) have emerged as key players in bridging this gap by providing financial services to those often overlooked by traditional banking institutions. This article delves into how NBFCs are fostering financial inclusion and empowering the unbanked.
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
how can I sell pi coins after successfully completing KYC
Leverage analysis
1. Institute of Business
Management and Research,
IPS Academy, Indore
Fundament of financial Management
“Leverage Analysis”
Prepared by-
Saloni Agrawal
Mahima Jain
Jai Kumar Pandit
MBA 2nd Sem
Submitted To
Ms. Jolly sushma
2. Meaning and Definition of Leverage
In general, leverage refers to accomplish certain things which are otherwise not possible
i.e. lifting of heavy objects with the help of lever. This concept of leverage is valid in
business also.
In finance, the term ‘leverage’ is used to describe the firm’s ability to use fixed cost asset or
funds to increase the return to its owners; i.e. equity share holders. In other words, the
fixed cost funds i.e. debentures & preference share capital act as the fulcrum, which
assist the lever i.e. the firm to lift i.e. to increase the earnings of its owner i.e. the equity
shareholders.
Leverage is also the influence which an independent variable has over a dependent/related
variable i.e. rainfall over production. In financial context, sales& fixed cost over profit.
3. Significance of Leverage
The term leverage refers to a relationship between two interrelated variables.
In financial analysis, the leverage reflects the responsiveness or influence of one
financial variable over some other financial variable.
It quantifies the relative changes in profit due to change in the sales. It depicts the
change in fixed costs incurred to sell the goods.
It helps the management in controlling operating costs or varying the profit with an
element of risk.
It also helps in forecasting.
It helps in understanding the relationship between any two variables.
However, the two variables for which the relationship is to be established should be
interrelated, otherwise, the leverage study may not have any useful purpose to serve.
4. Master Table to Calculate theLeverage
Sales
Less: Variable Cost
Contribution
Less: Fixed Cost
Operating Profit or EBIT
Less: Interest
Earning before Tax (EBT)
Less: Tax
Earning after Tax
Less: Preference Dividend
Earning Available to EquityShareholder
5. In Finance, leverage refers to the use of fixed costs to magnify the potential
return to a firm
Types of fixed costs:
Fixed Operating costs e.g.- rent, depreciation
Fixed Financial costs e.g.- interest costs on long term debt (Debentures) ;
Preference Dividend
Total Fixed Cost – Sum total of the above two
Classification of Leverage
Just as fixed costs may be broadly classified into:
• Operating Fixed Cost; and
• Financial Fixed Cost,
• Total Fixed Cost
Likewise, leverage may be classified into:
• Operating Leverage
• Financial Leverage
• Combined Leverage / Total Leverage
6. Operating Leverage
The “Operating Leverage” measures the relationship between the sales
revenue and the EBIT.
Leverage associated with asset acquisition/investment activities is referred to
as the operating leverage. It may be defined as the ability to use fixed operating
costs to magnify the effect of changes in sales on its operating profits (EBIT).
Thus, operating leverage is determined by the relationship between sales
revenue and EBIT.
When proportionate change in EBIT as a result of change in sales is more
than the proportionate change in sales, operating leverage occurs.
7. Operating leverage exists only when there are fixed operating
costs.
•If there are no fixed operating costs, there will be no operating
leverage.
Conclusion;
Analysis of operating leverage of a firm is very useful to the
financial manager.
It tells the impact of change in sales on the level of operating
profits of the firm.
A firm with high DOL can experience a magnified effecton
EBIT for even a small change in sales Level.
8. Financial Leverage
•The Financial Leverage measures the relationship between the EBIT
and the EPS.
•It reflects the effect of a change in EBIT on the level of EPS.
•It results from the presence of fixed financial charges (such as interest
on debt and dividend on preference shares).
•Financial leverage is related to the financing activities of a firm.
•Since such financial expenses do not vary with the operating profits,
financial leverage is concerned with the effect of changes in EBIT on the
earnings available to equity-holders.
•It is defined as the ability of a firm to use fixed financial charges to
magnify the effect of changes in EBIT on the earnings per share (EPS).
9. •Financial leverage exists only when there are fixed Financial
costs (e.g. Interest on Debentures, Preference Dividend) .
•If there are no fixed Financial costs, there will be no Financial
leverage.
10. COMBINED LEVERAGE
•Combined leverage is the product of operating and
financial leverage.
• It indicates the effect that sales changes will have on EPS.
•Degree of combined leverage (DCL) = DOL´DFL
Percentage change in EPS
Percentage change in EBIT ´
Percentage change in EBIT
Percentage changes in sales
Alternatively
EBIT
EBIT- I
=Sales -Variable costs X
EBIT
= Sales - Variable costs
EBIT- I
11. Illustration : The installed capacity of a factory is 800
units. Actual capacity uses is 400 units. Sellingprice
per unit is Rs.10. Variable cost is Rs.6 per unit. Calculate the
operating leverage in each of the following three situations
•.When fixed costs are Rs.400
•.When fixed costs are Rs.1,000
•When fixed costs are Rs.1,200
Particulars Situation Situation Situation
1 2 3
(i) Sales Rs. 4,000 Rs. 4,000 Rs. 4,000
(ii) Variable Cost 2,400 2,400 2,400
(iii) Contribution (i -ii) 1,600 1,600 1,600
(iv) Fixed Cost 400 1,000 1,200
(v) Operating Profit (iii - iv) 1,200 600 400
(vi) Operating Leverage (1,600/1,200) (1,600/600) (1,600/400)
(C/OP) 1.33 2.67 4