H ta,uf e gT foTstta T eTRTSTAIN T [Requiredform

formula for

determining Operating, Financial

and Combined Leveragel

1. Degree of Operating Leverage (DOL)

Degree of Operating Leverage (DOL) =EE

Contribution
EBIT

2. Degree of Financial Leverage (DFL)

() z OTCATCE uaRT C3IT (Preference share) RT Degree of Financal

EBIT

i) z
Leverage (DFL)= EBT
DIATTE eR CT (Preference share) TE
=-EBIT
Degree of Financial Leverage (DFL)
EBT d
T-0
)7
3. Degree of Combined Leverage

74AITCATCE eR
Leverage = Contribution
EBT
(DCL)
CRIS (Preference share) RTCDegree of Combined

(i) zii qTK PTOTCATTE HAPT CTAT (Preference share) T3

Contribution
Degree of Combined Leverage EBT-
(ii) DCL = DOL x DFL (1-1
4. Contribution,
EBIT, EBT EPS AN 3
Sales
Less: Variable cost
Contribution
 489
Fixed cost
Less:
Earning before interest and tax (EBIT)
Interest
Less tax (EBT)
Earning before
Tax EBT x tax
rate (t)]
Less: [
tax
(EAT)
Earning after
Less: Preference Dividend (P)
Tax & Preference dividend
Earning after Interest,
tax & Preference dividend
Earning after interest,
EPS No. of Equity Shares

combined leverage
leverage and
ecRT91 (Application)
financial
leverage,
a) Calculate the degree of operating
'A' and 'B':
data under financial plan
fromthe following 45,000 units
Installed
capacity 80% of the capacity

Actual production and sales 725 per unit

Selling price 7 15 per unit
Variable cost
71,60,000
Fixed cost 50%
Tax rate Plan
Financial
B
Capital Structure A
2,50,000
5,00,000
(): 2,00,000
Share Capital of 7 10 each
Equity

100 each
() 2,50,000
Preference Share Capital of () 2,00,000 = 10%
Debt
upto 1,00,000 = 12%
Cost of
Debt to 2,00,000== 16%
above 1,00,000
above 2,00,000

= DOLx DFL or not. DCL ?

(b) Verify whether DCL value of
the computed
(c) hat conclusion do yo draw from by 5% in case of
in of
is increased
sales
(d) Calculate EPS. the volume of Plan 'B.Verify your
results.
share (i) ofif
in case
(e)What willDe
be the earning
earning per by 5%
is decreased
plan'A'
ume of sales
and (i) the volume
if

leverage,
financial leverage
Solution of operating