Corporate Finance Flashcards
1
Q
Financial Leverage
A
The extent to which a firm relies on debt in its capital structure
2
Q
Degree of Operating Leverage Definition
A
The percentage change in net operating income associated with a given percentage change in sales
3
Q
Degree of Operating Leverage Formula
A
DOL = CM / EBIT (operating income)
4
Q
Degree of Financial Leverage Definition
A
The percentage change in earnings available to common shareholders that is associated with a given percentage change in net operation income
5
Q
Degree of Financial Leverage Formula
A
DFL = EBIT / (EBIT - I)
OR
DFL = % change in EPS / % change in EBIT
6
Q
Effective Interest Rate Formula
A
Effective Interest Rate = (1 + rate/n)n - 1
7
Q
Technical Insolvency
A
The inability to pay debts as they come due
