CS part 2 Flashcards
1
Q
operation leverage
A
degree to which the firm uses fixed operating costs. High operating leverage has high fixed operating cost and low variable operating cost
2
Q
EBIT
A
Pretax income + interest
3
Q
When does financial leverage increase?
A
when the debt-to-equity ratio increase
4
Q
Selling price - variable expenses - fixed expenses =
A
EBIT
5
Q
High fixed cost to total cost structure ( variable cost and total costs) what does this mean for operation leverage
A
Increase, implying that the company must generate enough sales in order to meet its fixed obligations
6
Q
operating leverage shortcut calculation
A
total cost X % variable cost / by the balance
ex. 100000 X .40 = 40000
100000 - 40000 = 60000/40000 = 1.5
