Leverage Ratios

Question 1

Equation: Cash Flow to Fixed Charges

Answer 1

OPEX CF + Fixed Charges + Tax Payments

÷

Fixed Charges

Question 2

Equation: Degree of Operating Leverage

Answer 2

Single Period: Contribution margin ÷ Operating Income

Multi period: % change in EBIT ÷ % change in sales

Question 3

Equation: Degree of Financial Leverage

Answer 3

Single Period: EBIT ÷ EBT

Multiperiod: % change in NET INCOME ÷ % change in EBIT

or

% change in EPS ÷ % change in EBIT

Question 4

Equation: INTEREST COVERAGE RATIO

Answer 4

EBIT

÷

INTEREST EXPENSE