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    DoL & DoFL Analysis

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    Sharjeel Alvi
    The document contains financial information for three firms (A, B, C) including their sales, costs, profits, taxes, dividends and earnings per share. It also includes formulas and explanations of financial ratios like degree of operating leverage (DOL), degree of financial leverage (DFL), coefficient of variation (CV), breakeven analysis and more. DOL and DFL are calculated for each firm to measure their relative operating and financial risks. The coefficient of variation is explained as a measure of risk relative to return. Formulas are provided for calculating quantities like breakeven point, sales breakeven, and degree of total leverage.

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    DoL & DoFL Analysis

    Uploaded by

    Sharjeel Alvi
    47 views4 pages
    The document contains financial information for three firms (A, B, C) including their sales, costs, profits, taxes, dividends and earnings per share. It also includes formulas and explanations of financial ratios like degree of operating leverage (DOL), degree of financial leverage (DFL), coefficient of variation (CV), breakeven analysis and more. DOL and DFL are calculated for each firm to measure their relative operating and financial risks. The coefficient of variation is explained as a measure of risk relative to return. Formulas are provided for calculating quantities like breakeven point, sales breakeven, and degree of total leverage.

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    Analysis

    Original Title

    DoL & DoFL analysis

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    The document contains financial information for three firms (A, B, C) including their sales, costs, profits, taxes, dividends and earnings per share. It also includes formulas and explanations of financial ratios like degree of operating leverage (DOL), degree of financial leverage (DFL), coefficient of variation (CV), breakeven analysis and more. DOL and DFL are calculated for each firm to measure their relative operating and financial risks. The coefficient of variation is explained as a measure of risk relative to return. Formulas are provided for calculating quantities like breakeven point, sales breakeven, and degree of total leverage.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    47 views4 pages

    DoL & DoFL Analysis

    Uploaded by

    Sharjeel Alvi
    The document contains financial information for three firms (A, B, C) including their sales, costs, profits, taxes, dividends and earnings per share. It also includes formulas and explanations of financial ratios like degree of operating leverage (DOL), degree of financial leverage (DFL), coefficient of variation (CV), breakeven analysis and more. DOL and DFL are calculated for each firm to measure their relative operating and financial risks. The coefficient of variation is explained as a measure of risk relative to return. Formulas are provided for calculating quantities like breakeven point, sales breakeven, and degree of total leverage.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    Firm A Firm B Firm C

    Sales 10,000 11,000 19,500


    less:operating cost
    Fixed cost (FC) 7,000 2,000 14,000
    Variable Cost (VC) 2,000 7,000 3,000
    Operating pofit or EBIT 1,000 2,000 2,500

    Firm A Firm B Firm C


    EBIT 2,700 2,700 2,700
    less:Interest 0 600 0
    Earnings before Taxes (EBT)/Profit before taxes (PBT) 2,700 2,100 2,700
    Income Taxes(EBT*t) 1080 840 1080
    Earnings after taxes 1,620 1,260 1,620
    Preferred Dividend 0 0 550
    Earnings available to shareholders 1,620 1,260 1,070
    No of shares common stock outstanding (NS) 300 200 200

    EPS 5.4 6.3 5.35

    Tot. Risk=Business Risk+Financial Risk


    Risk Component
    Standard Dev. Of EPS
    Coefficent of Variation of EPS=CVEPS=SDEPS/E[EPS] Measure of relative total firm risk
    Standard Dev. Of E[EBIT]
    Coefficent of Variation of CVEBIT=SD EBIT/E[EBIT] Measure of relative business risk

    CVEPS- CV EBIT = Measure of relative financial risk

    The coefficient of variation shows the extent of variability


    of data in a sample in relation to the mean of the
    population. In finance, the coefficient of variation allows
    investors to determine how much volatility, or risk, is
    assumed in comparison to the amount of return expected
    from investments
    Quantity Breakeven=QBE Fixed Cost/Price-Variable Cost

    Sales Breakeven=SBE Fixed Cost+(QBE)+(VC)


    Fixed Cost/[1-(VC/S)]

    DoL for Single Product Firm Q(P-V)/Q(P-V)-FC


    DoL for multiproduct firm EBIT+FC/EBIT

    DFLEBIT*Xdollar DFL=EBIT/EBIT-I-[PD/(1-t)]

    EPS=Net Profit after taxes/No of shares or (EBIT-I)(1-t)-PD/NS

    DTL or Degree of Total Leverage DTL qunits = Q(P-V)/Q(P-V)-FC-I-[(PD/(1-t))]


    DTL S dollar=EbIT/EBIT-I-[PD(1-t))]
    DTLQunits=DoL Qunits or S dollar*DFL EBIT*dollar
    DOL
    Firm A
    Contribution/EBIT

    10,000-2000/1000
    8

    *Contribution=Sales-VC

    DFL
    Firm A
    EBIT/PBT
    2700/2700
    1

    Selling price of cycle =50perunit


    VC=25 per unit
    Annual fixed operating cost=100,000
    200,000 debt at 8% interest, calculate DTL at
    8,000 unit of level output

    8000(50-25)/8000(50-25)-100,000-16000
    =2.38
    DOL
    Firm B Firm C
    Contribution/EBIT Contribution/EBIT

    11,000-7,000/2,000 19,500-3,000/2500
    2 6.6

    on=Sales-VC

    DFL
    Firm B Firm C
    EBIT/PBT EBIT/PBT
    2700/2100 2700/[2700-(550/.6)]
    1.28 1.51

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