The following table demonstrates the impact of

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Unformatted text preview: ct of operating leverage on Adobe Systems in fiscal years (FYs) 2000 and 2001. Operating leverage magnified the increase in EBIT in 2000. Sales growth of 24.7 percent resulted in EBIT growth of 56.9 percent. In 2001 a slight dip in sales—just under 3 percent—became a 7.4 percent drop in EBIT. Because the company has no long-term debt in its capital structure, its total leverage is derived only from fixed operating costs. When sales and EBIT again rise, the company’s high operating leverage will boost EBIT growth. (It’s important to remember that this example represents only 2 years and that Adobe’s degree of operating leverage may change in the future.) Sources: Adapted from Zeke Ashton, “The Software Advantage,” Motley Fool (March 31, 2000), downloaded from www.fool.com; James K. Glassman, “Tech Still Has a Place in Portfolios,” Washington Post, December 16, 2001, p. H1; Matt Richey, “EMC’s Operating Leverage,” Motley Fool (August 14, 2000); Mike Trigg, “Assessing Adobe’s Valuation,” Motley Fool (September 10, 2001); and “Operating Leverage Helps Adobe,” Motley Fool (March 16, 2001), all downloaded f...
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This document was uploaded on 01/19/2014.

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