Question

Last year Arena Aviation's operating income (EBIT) increased by 22% while its dollar sales increased by...

Last year Arena Aviation's operating income (EBIT) increased by 22% while its dollar sales increased by 15%. What is Arena's degree of operating leverage?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Operating leverage measures the effect of change in sales on the level of EBIT. The degree of operating leverage (DOL) indicates the effect of every 1% change in the company’s sales on the % change in EBIT.

% change in EBIT = 22%

% change in Sales = 15%

Degree of operating leverage = 1.4666

= 1.47 (approx)

The DOL indicates that every 1% change in the company’s sales will change the company’s operating income by 1.47 %

Hope it helps!

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A company's sales have increased from $1,107,900 to $1,309,225. Its operating income has increased from $232,000...
A company's sales have increased from $1,107,900 to $1,309,225. Its operating income has increased from $232,000 to $315,937, and its earnings per share increased from 1.30 to 1.50. Calculate the degree of financial leverage.
​(Using degree of operating​ leverage) Last year​ Baker-Huggy Inc. had fixed costs of ​$200,000 and net...
​(Using degree of operating​ leverage) Last year​ Baker-Huggy Inc. had fixed costs of ​$200,000 and net operating income of ​$27,000. If sales increase by 20 ​percent, by how much will the​ firm's NOI​ increase? What would happen to the​ firm's NOI if sales decreased by 22 ​percent? If sales increase by 20​%, the change in the​ firm's NOI will be ▼ of %. ​(Select from the​ drop-down menu and round to two decimal​ places.)
Last year Miami Rivet had $5 million in operating income (EBIT). Its depreciation expense was $1...
Last year Miami Rivet had $5 million in operating income (EBIT). Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 25%. At year-end, it had $14 million in operating current assets, $3 million in accounts payable, $1 million in accruals, $2 million in notes payable, and $15 million in net plant and equipment. Assume Miami Rivet has no excess cash. Miami Rivet uses only debt and common equity to fund its...
Last year Harrington Inc. had $6 million in operating income (EBIT). Its depreciation expense was $1.5...
Last year Harrington Inc. had $6 million in operating income (EBIT). Its depreciation expense was $1.5 million and its interest expense was $1.25 million.  Its corporate tax rate is 25%. Harrington had $13 million in operating current assets, $3 million in accounts payable, $2 million in accruals, and $1 million in notes payable at year's end.   In addition, it had $12 million in net plant and equipment and no excess cash. The prior year, Harrington had $10 million in net plant...
Residual income indicates how ___? a. much operating income the division earns on every dollar of...
Residual income indicates how ___? a. much operating income the division earns on every dollar of sales b. much extra operating income a division generates above the minimum acceptable level c. much return a division generates on average assets d. efficiently a division uses its financial leverage to generate sales and thereby profits
Last year Miami Rivet had $5 million in operating income (EBIT). Its depreciation expense was $1...
Last year Miami Rivet had $5 million in operating income (EBIT). Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 25%. At year-end, it had $14 million in operating current assets, $3 million in accounts payable, $1 million in accruals, $2 million in notes payable, and $15 million in net plant and equipment. Assume Miami Rivet has no excess cash. Miami Rivet uses only debt and common equity to fund its...
Last year Miami Rivet had $5 million in operating income (EBIT). Its depreciation expense was $1...
Last year Miami Rivet had $5 million in operating income (EBIT). Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 25%. At year-end, it had $14 million in operating current assets, $3 million in accounts payable, $1 million in accruals, $2 million in notes payable, and $15 million in net plant and equipment. Assume Miami Rivet has no excess cash. Miami Rivet uses only debt and common equity to fund its...
Discussion questions: From last year to this year, Berry Barn reported that its Net Sales increased...
Discussion questions: From last year to this year, Berry Barn reported that its Net Sales increased from $300,000 to $400,000 and its Gross Profit increased from $90,000 to $130,000. Was the Gross Profit increase caused by (a) an increase in sales volume only, (b) an increase in gross profit per sale only, or (c) a combination of both? Explain your answer.
INCOME STATEMENT Edmonds Industries is forecasting the following income statement: Sales $9,000,000 Operating costs excluding depreciation...
INCOME STATEMENT Edmonds Industries is forecasting the following income statement: Sales $9,000,000 Operating costs excluding depreciation & amortization 4,950,000 EBITDA $4,050,000 Depreciation and amortization 900,000 EBIT $3,150,000 Interest 720,000 EBT $2,430,000 Taxes (40%) 972,000 Net income $1,458,000 The CEO would like to see higher sales and a forecasted net income of $2,551,500. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 15%. The tax rate, which...
The following information applies to questions 13 through 15. Solomon Company produces tires. The company's income...
The following information applies to questions 13 through 15. Solomon Company produces tires. The company's income statement for 2015 is as follows: RIPKEN COMPANY, Income Statement For the Year Ended December 31, 2015 Sales (25,000 gloves at $50 each) $1,250,000 Less Variable Costs (25,000 gloves at $20) 500,000 Fixed Costs 600,000 Earnings before Interest and Taxes (EBIT) 150,000 Interest Expense 80,000 Earnings Before Taxes (EBT) 70,000 Income Tax Expense (30%) 21,000 Earnings after Taxes (EAT) 49,000 13. What is the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT