Operating-Financial Leverage Example

Operating-Financial Leverage Example - $2.310 $2.706 +17%...

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Operating and Financial Leverage Examples of Impact Base (100,000 units) +10% (110,000 units) -10% (90,000 units) Company with Operating and Financial Leverage: Sales 1,400,000 1,540,000+10% 1,260,000-10% Variable Costs (800,000) (880,000) (720,000) Contribution Margin 600,000 660,000 540,000 Fixed Costs (250,000) (250,000) (250,000) Operating Income (EBIT) 350,000 410,000 +17% 290,000 -17% Interest (125,000) (125,000) (125,000) EBT 225,000 285,000 165,000 ` Tax (34%) (76,500) (96,900) (56,100) Net Income 148,500 188,100 108,900 EPS (100,000 Shares) $1.485 $1.881 +27% $1.089 -27% Company with Operating Leverage: Sales 1,400,000 1,540,000+10% 1,260,000-10% Variable Costs (800,000) (880,000) (720,000) Contribution Margin 600,000 660,000 540,000 Fixed Costs (250,000) (250,000) (250,000) Operating Income (EBIT) 350,000 410,000 +17% 290,000 -17% Interest - - - EBT 350,000 410,000 290,000 Tax (34%) (119,000) (139,400) (98,600) Net Income 231,000 270,600 191,400 EPS (100,000 Shares)
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Unformatted text preview: $2.310 $2.706 +17% $1.914 -17% Company with Financial Leverage: Sales 1,400,000 1,540,000+10% 1,260,000-10% Variable Costs (1,050,000) (1,155,000) (945,000) Contribution Margin 350,000 385,000 315,000 Fixed Costs- - - Operating Income (EBIT) 350,000 385,000 +10% 315,000 -10% Interest (125,000) (125,000) (125,000) EBT 225,000 260,000 190,000 Tax (34%) (76,500) (88,400) (64,600) Net Income 148,500 171,600 125,400 EPS (100,000 Shares) $1.485 $1.716 +16% $1.254 -16% Company with No Leverage: Sales 1,400,000 1,540,000+10% 1,260,000-10% Variable Costs (1,050,000) (1,155,000) (945,000) Contribution Margin 350,000 385,000 315,000 Fixed Costs- - - Operating Income (EBIT) 350,000 385,000 +10% 315,000 -10% Interest- - - EBT 350,000 385,000 315,000 Tax (34%) (119,000) (130,900) (107,100) Net Income 231,000 254,100 207,900 EPS (100,000 Shares) $2.310 $2.541 +10% $2.079 -10%...
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