Unformatted text preview: . Revenues equal price times the quantity sold, and variable costs equal cost times the quantity produced. If the profit margin and working capital (particularly accounts receivable) do not change from period to period, Therefore: However, from Equation (1) above, . Therefore: The quantity PV(FC)/A is known as the operating leverage. The equation above says that . It also suggests that we can estimated beta of the assets when we have information on the systematic risk of the firm’s revenues as measured by the beta of its revenues, or, in other words, information on how the changes in revenue move together with changes in the market....
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This note was uploaded on 02/12/2012 for the course UGBA 101A taught by Professor Mccullough during the Spring '08 term at Berkeley.
- Spring '08