韩山师范学院财务管理课件第五章 Operating and Financial Leverage.ppt

Chapter 5 Operating and FinancialLeverage Chapter 5 - Outline LT 5-1 What is Leverage? Break-Even (BE) Point Operating Leverage Financial Leverage Leverage Means Risk Combined or Total Leverage What is Leverage? LT 5-2 Leverage is using fixed costs to magnify the potential return to a firm 2 types of fixed costs: – fixed operating costs = rent, depreciation – fixed financial costs = i costs from debt Break-Even (BE) Point Quantity where Total Revenue equals Total Cost Company has no Profit or Loss BE = FC / P – VC A leveraged firm has a high BE point A non-leveraged firm has a low BE point Operating Leverage LT 5-4 Measure of the amount of fixed operating costs used by a firm Degree of Operating Leverage (DOL) = %age ? in EBIT (or OI) / %age ? in Sales a ? in Sales ? a larger ? in EBIT (or OI) Operating Leverage measures the sensitivity of a firm’s operating income to a ? in sales Financial Leverage LT 5-5 Measure of the amount of debt used by a firm Degree of Financial Leverage (DFL) = %age ? in EPS / %age ? in EBIT (or OI) a ? in EBIT (or OI) ? a larger ? in EPS Financial Leverage measures the sensitivity of a firm’s earnings per share to a ? in operating income Leverage Means Risk LT 5-6 Leverage is a double-edged sword It magnifies profits as well as losses An aggressive or highly leveraged firm has high fixed costs (and a relatively high break-even point) A conservative or non-leveraged firm has low fixed costs (and a relatively low break-even point) Many Japanese firms tend to be highly leveraged Combined or Total Leverage LT 5-7 Represents maximum use of leverage Degree of Combined or Total Leverage (DCL or DTL) = %age ? in EPS / %age ? in Sales a ? in Sales ? a larger ? in EPS Short-cut formula: DCL or DTL = DOL x DFL McGraw-Hill/Irwin ? 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. PPT 5-1 FIGURE 5-1 Break-even chart:Leveraged firm PPT 5-2 TABLE 5-2 Volume-cost-profit analysis:Leveraged firm PPT