L05 Leverage - Leverage Operating and Financial Leverage...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Copyright ©2003 Stephen G. Buell Leverage Operating and Financial Leverage Copyright ©2003 Stephen G. Buell Leverage Operating Leverage L Employment of an asset for which the firm pays a fixed cost Financial Leverage L Employment of funds which the firm pays a fixed return Copyright ©2003 Stephen G. Buell Operating Leverage Firm has fixed operating costs that do not vary with output Rent, capital equipment, salaries A change in output or sales produces a proportionally greater change in operating profits Small Q L bigger Operating Profits
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Copyright ©2003 Stephen G. Buell Degree of Operating Leverage 1 FC - AVC) - Q(P AVC) - Q(P OL AVC) - dQ(P d constant, are FC and AVC P, if FC - Q AVC - Q P Q AVC VC FC VC TC Q P TR TC - TR cost fixed FC cost variable total VC cost, variable avg AVC cost total TC revenue, total TR unit, per price P output Q profit, OL 1 sales or Output % Profit Operating % OL sales or output in change a to profits operating of ness responsive the measuring t coefficien elasticity An = = = = + = = = = = = = = = = = ÷ = = p
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/07/2011 for the course FIN 125 taught by Professor Buell during the Spring '08 term at Lehigh University .

Page1 / 5

L05 Leverage - Leverage Operating and Financial Leverage...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online