Tag Archives | Leverage

Top 3 Types of Leverages (With Formula and Calculations)

This article throws light upon the top three types of leverage. The types are: 1. Financial Leverage 2. Operating Leverage 3. Composite Leverage. Type # 1. Financial Leverage: A firm needs funds so run and manage its activities. The funds are first needed to set up an enterprise and then to implement expansion, diversification and […]

Operating Leverage: Introduction, Method and Degree

After reading this article you will learn about Operating Leverage:- 1. Introduction to Operating Leverage 2. Method of Computing Operating Leverage 3. Degree 4. Relationship between Operating Leverage and CVP Analysis. Introduction to Operating Leverage: Operating leverage arises when the operating profit varies disproportionately with the amount of sales, i.e., it appears from the existence […]

Break Even Chart: Meaning, Advantages and Types

After reading this article you will learn about Break Even Chart:- 1. Meaning of Break-Even Chart 2. Construction of a Break-Even Chart 3. Method of Preparation 4. Advantages 5. Limitations 6. Multi-Product 7. Types. Contents: Meaning of Break-Even Chart Construction of a Break-Even Chart Types of Break-Even Chart Method of Preparation of Break-Even Chart Advantages […]

Cost-Volume-Profit: Meaning, and Ascertainment

After reading this article you will learn about the meaning and ascertainment of cost-volume-profit. Meaning of Cost-Volume-Profit: We know that profit is one of the most important factors while measuring business/ firm’s performances. Micro economic theory tells us that profit is a signal for the allocation of resources and a yardstick for measuring managerial efficiency […]

Formula for Calculating Combined Leverage

Combined/composite/total leverage measures the relationship between quantity produced and sold and EPS. Thus, the degree of combined leverage (DCL) is computed as under: Illustration: Calculate the degree of operating leverage, degree of financial leverage and the degree of combined leverage for the following firms and interpret the result: Solution: Interpretation and Comments: From the above […]

Profit/Volume (P/V) Graph: Meaning and Method

After reading this article you will learn about Profit/Volume (P/V) Graph:- 1. Meaning of Profit/Volume Graph or Profit Chart 2. Method of Constructing P/V Graph. Meaning of Profit/Volume Graph or Profit Chart: A P/V Graph expresses the relationships between profit and volume. Its usefulness is to show a direct relationship between profit and the volume […]

Financial Leverage: Meaning, Types and Degree

After reading this article you will learn about Financial Leverage:- 1. Meaning of Financial Leverage 2. Types of Financial Leverage 3. Degree 4. EBIT-EPS Analysis. Meaning of Financial Leverage: Financial leverage may be expressed when the residual net income (earnings after interest and taxes and preference dividend) varies not in proportion with operating profit (EBIT). […]

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