LEVERAG

E
Operating Leverage =

Gross Profit
Earnings Before Interest and Tax

Financial Leverage =

Earnings Before Interest and Tax

EBIT - Interest - (Preferred Dividends/1Tax)

Total Leverage =

LEVE
RAGE
Operat
ing
Levera
ge
Financ
ial
Levera
ge
Total
Levera
ge

Gross Profit
EBIT-Interest - (Preferred Dividends/1-Tax)

2009

2010

2011

2012

2013

2.90

2.81

2.86

2.90

2.53

1.06

1.08

1.05

1.03

2.97

3.09

3.05

2.60

1.07
3.10

ANALYSIS:
As you can see in the table above, the years 2009 and 2012 has the highest Operating
Leverage which means that years 2009 and 2012 had a greater potential danger from forecasting
risk compared to the other years. That is, if a relatively small error is made in forecasting sales, it
can be magnified into large errors in cash flow projections. While in the year 2013, it shows that
it is the least leveraged among the 5 years. Under Financial Leverage, 2011 has the highest
financial leverage which means that in this year, it used more debt financing. A high degree of
financial leverage means high interest payments, which negatively affect the company's bottomline earnings per share. Under the Total Leverage, Year 2009 is the highest which shows that it

has a high amount of operating leverage and financial leverage, a small change in sales will lead
to a large variability in EPS.