B2 - M2: Capital Structure II

Question 1

EPS

Answer 1

• monetary value of earnings per outstanding share of common stock for a company

= (Net Income - Preferred Dividends) / # CS Shares Outstanding

Question 2

Operating Leverage

Answer 2

• the degree to which a company can increase operating income by increasing revenue
• high gross margin and low variable costs = high operating leverage

= Fixed Costs / Variable Costs