FAR 1F - Financial Ratios - Leverage

Question 1

Degree of Operating Leverage DOL

Answer 1

Contribution Margin CM / Operating Income EBIT

Multiple Year:

% change in Operating Income EBIT / % Change in Sales

CM = Sales - Variable costs

Question 2

Degree of Financial Leverage DFL

Answer 2

Operating Income EBIT / Earnings before Taxes EBT

Multiple Year:

% change in Net Income / % Change in Operating Income (EBIT)

Question 3

Financial Leverage Ratio

Answer 3

Total Assets / Equity

Question 4

Debt to Equity Ratio DER

Answer 4

Total Debt / Equity

Question 5

Debt to Assets Ratio DTAR

Answer 5

Total Debt / Total Assets

Question 6

Fixed Charge Coverage Ratio FCCR

Answer 6

Earnings before fixed charges and taxes EBFT / Fixed Charges

Question 7

Interest Coverage Ratio ICR

Answer 7

Earnings before interest and taxes EBIT / Interest Expense

Question 8

CF to fixed Charges Ratio

Answer 8

(Operating CF + Fixed Charges + Tax Payments) / Fixed Charges

Fixed charges: interest, lease payments, debt repayment obligations, preferred divi, (insurance)