0
Want this question answered?
Be notified when an answer is posted
Add your answer:
Earn +20 pts
The concept of operating leverage involves the use of this to magnify returns at high levels of operation?
fixed cost
Firms with relatively high nonfinancial fixed costs are said to have a high degree of what?
Operating Level.
What is the use of high leverage end cutting?
The use of high leverage end cutting is for turning an object.
A high degree of financial leverage means?
A high degree of financial leverage means the benefits from tax-deductibility of interest(from additional debt) is more than offset by the increase in financial distress. The firm's fixed obligations are higher and the risk of a likely default is increased with a higher Debt to Equity ratio. There isn't any set out formula that sets the optimal leverage for a firm...but at some some point taking on more debt, with increases the risk anf thus the return of Equity holders further increases the risk of bondholders and creditors to the firm. Any default in payments leads to distress including bankruptcy, more financial burdens to fight off or succomb to bankruptcy, lower value of firms residual assets allocated to Equityholders and likelihood of the firm shotting down.
Firms with a high degree of operating leverage are?
Have a high amount of fixed costs relative to their variable costs. DOL= CM / Net Income We derive CM by the eqaution of Selling Price - Variable Costs If a firm has high variable costs relative to their selling price then they will have a small CM and therefore their DOL will decrease. Have a high amount of fixed costs relative to their variable costs. DOL= CM / Net Income We derive CM by the eqaution of Selling Price - Variable Costs If a firm has high variable costs relative to their selling price then they will have a small CM and therefore their DOL will decrease.
What is the meaning of operating leverage describe it?
Operating leverage is the degree to which cost within a company is fixed. Fixed costs are costs that do not vary with sales. For example, the salary of a manager on a contract is fixed; that is regardless of the production level of a company the manager's pay would not change. Another example is rent, regardless of how much items are sold the rent for a store does not change. With this said, a company with a high operating leverage (in other words high fixed cost) have a high risk because it magnifies the effects of profit depending on sales. This could be measured by computing the degree of operating leverage (DOL) which is the percentage change in profit given a 1 percent change in sales.An example from my Finance textbook (Fundamentals of Corporate Finance) shows a nice table that compares a high fixed cost company (high operating leverage) with a high variable cost company (low operating leverage) given different states of sales. So the following table is a replication of that table and not my own.High Fixed Cost (High Operating Leverage)High Variable Cost(Low Operating Leverage)Sales:SlumpNormalBoomSlumpNormalBoomSales130001600019000130001600019000- VC105631300015438109201344015960- FC200020002000156015601560- Dep.450450450450450450= Profit-135501112705501030VC = variable cost; FC = fixed cost; Dep = deprecation; Profit = before taxAs you can see that with a high operating leverage, the changes from a $3000 change in sales is more than the change from a company with a low operating leverage. This could be captured through DOL as well.DOL = (% change in profits) / (% change in sales)Where % change = (New value - old value) / (old value)If we look at the normal to boom situations:For the high fixed cost the percentage change in profits is 102.20% and the percentage change in sales is 18.75% DOL is as followed:DOL = 102.20/ 18.75 = 5.45For the high variable company the percentage change in profits is 87.30% and the percentage change in sales is 18.75% DOL is as followed:DOL = 87.30/ 18.75 = 4.65Thus the higher the DOL the more fixed cost a company has and the more risk it assumes if the sales slump. But it also means that when sales boom, the higher operating leveraged company will profit merrily!
The concept of operating leverage involves the use of this to magnify returns at high levels of operation?
fixed cost
Firms with relatively high nonfinancial fixed costs are said to have a high degree of what?
Operating Level.
What are the advantages and disadvantages of a high leverage ratio?
disadvantages of a high leverage ratio in financial crisis
What is the use of high leverage end cutting?
The use of high leverage end cutting is for turning an object.
Is high financial leverage always bad?
No
What is the major attraction of forex market?
The major attraction of forex market is the high leverage used in forex trading. Of course, high leverage also brings high risk to the table.
What does hyperintense mean?
According to Dictionary.com it means acute or at a high degree.
A high degree of financial leverage means?
A high degree of financial leverage means the benefits from tax-deductibility of interest(from additional debt) is more than offset by the increase in financial distress. The firm's fixed obligations are higher and the risk of a likely default is increased with a higher Debt to Equity ratio. There isn't any set out formula that sets the optimal leverage for a firm...but at some some point taking on more debt, with increases the risk anf thus the return of Equity holders further increases the risk of bondholders and creditors to the firm. Any default in payments leads to distress including bankruptcy, more financial burdens to fight off or succomb to bankruptcy, lower value of firms residual assets allocated to Equityholders and likelihood of the firm shotting down.
What does a high degree of freedom mean?
A high degree of freedom means that an appendage can pivot or rotate in numerous of ways. The definition of 'high' is not specifically defined, but usually an appendage that can pivot or rotate in more than six or seven ways is considered to have a high degree of freedom.
What does Dr. as a status mean?
It means you have a doctorate (high-class, postgraduate degree) in something.
Firms with a high degree of operating leverage are?
Have a high amount of fixed costs relative to their variable costs. DOL= CM / Net Income We derive CM by the eqaution of Selling Price - Variable Costs If a firm has high variable costs relative to their selling price then they will have a small CM and therefore their DOL will decrease. Have a high amount of fixed costs relative to their variable costs. DOL= CM / Net Income We derive CM by the eqaution of Selling Price - Variable Costs If a firm has high variable costs relative to their selling price then they will have a small CM and therefore their DOL will decrease.
