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Unformatted text preview: operating income . This “multiplier effect” is called the degree of operating leverage (DOL). If we have the data, we can use this formula: Example #1: DOL = 2 A 1% increase in sales will result in a 2% increase in operating income (EBIT) . Example #2: DOL = 4 A 1% increase in sales will result in a 4% increase in operating income (EBIT) . * Answer to Thought Question Q: What happens to his operating profit if he has DOL of 5 and he decides to “cut-back” from 20 to 19 patients per day? A: [(19-20)/20]=-0.05 or 5% decrease in revenue 5% decrease in revenue x DOL of 5 = -0.25 25% Decline in Operating Profit...
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- Summer '11