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CHIMC Presented By: Akhilesh Chawda LEVERAGE
What is Leverage?
 
 
TYPES OF LEVERAGE ,[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Business Risk
EBIT Operating Leverage
[object Object],Financial Risk
EPS Financial Leverage
Indifference Point Quantity { Total  Revenue Total Cost = Fixed FC Break- even point } Q 1 + - EBIT
[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],}  contribution margin EBT (1 - t) = Net Income,  so, Net Income / (1 - t) = EBT Analytical Income Statement
[object Object],[object Object],Degree of Operating Leverage (DOL)
DOLs  =  % change in EBIT % change in sales change in EBIT EBIT change in sales sales = Degree of Operating Leverage from Sales Level (S)
[object Object],What does this tell us? Stock- holders EBIT EPS Sales
[object Object],[object Object],Degree of Financial Leverage (DFL)
DFL  =  % change in  EPS % change in EBIT change in  EPS EPS change in EBIT EBIT = Degree of Financial Leverage
[object Object],What does this tell us? Stock- holders EBIT EPS Sales
[object Object],[object Object],Degree of Combined Leverage (DCL)
DCL  =  DOL  x  DFL  % change in  EPS % change in Sales = change in  EPS EPS change in Sales Sales = Degree of Combined Leverage
Leverage Sales EBIT EPS DOL DFL DCL
[object Object]

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Leverage n finance, gearing is borrowing money to supplement existing funds for investment in such a way that the potential positive or negative outcome is magnified and/or enhanced