Chapter 12 Leverage and Capital Structure
Principles of Managerial Finance An-Najah National University Prepared by Lecturer: E.Shatha Qamhieh
Part one : Leverage
Leverage Refers to the effects that fixed costs have on the returns that shareholders earn; higher leverage generally results in higher but more volatile returns. Types of leverage include: 1.Operating Leverage 2.Financial Leverage 3.Total Leverage 4/16/2012 Managerial Finance_An-Najah University 2
Types of leverage
Operating Leverage Sales revenue
Operating Profit EBIT
Financial Leverage Operating Profit EBIT
Total Leverage Sales Revenue
Managerial Finance_An-Najah University
General Multistep Income Statement Format and Types of Leverage
Managerial Finance_An-Najah University
Contribution Margin Income Statement Format
Variable production expenses (such as materials, supplies, and variable overhead) Variable selling and administrative expenses Contribution margin Fixed production expenses (including most overhead) Fixed selling and administrative expenses Net operating income or loss
A contribution margin income statement is an income statement in which all variable expenses are deducted from sales to arrive at a contribution margin, from which all fixed expenses are then subtracted to arrive at the net operating income or loss for the period. 4/16/2012 Managerial Finance_An-Najah University 5
Using Contribution Margin Concept to determine Operating Breakeven Point Sales Revenue Operating Leverage Less : Variable Operating Expenses Less: Fixed Operating Expenses Earning before Interest and Taxes (P × Q) (VC × Q) FC__ EBIT
P Q FC
= = =
sales price per unit sales quantity in units fixed operating costs per period variable operating costs per unit operating profit Rewriting the algebraic calculations
VC = EBIT =
EBIT = (P x Q) - (VC x Q) - FC
4/16/2012 Managerial Finance_An-Najah University 6
Operating Breakeven Point is: The level of sales necessary to cover all operating costs; the point at which EBIT =$0. EBIT = (P x Q) - (VC x Q) - FC To determine the operating breakeven point let EBIT =$0. Zero = QO.B.E (P - VC) - FC QO.B.E (P - VC) = FC QO.B.E = FC (P - VC) QO.B.E = Fixed Operating Cost Unit Contribution Margin
QO.B.E : is operating breakeven point in Unit Sales (QO.B.E x P ) : is operating breakeven point in dollar Sales 4/16/2012 Managerial Finance_An-Najah University 7
How changes in FC, P, FC will change Q O.B.E
QO.B.E = FC (P - VC)
Change Increase Decrease Selling price per unit (P) Variable operating cost (VC) Increase Decrease Increase Decrease Effect on Q O.B.E. Increase Decrease Decrease Increase Increase Decrease
______Variable_______ Fixed operating cost (FC)
Managerial Finance_An-Najah University
Conclusions of Operating Breakeven Point If Q Sales > Q O.B.E EBIT > 0 Then
Q Sales = Q O.B.E EBIT = 0
Q Sales < Q O.B.E
EBIT < 0
Managerial Finance_An-Najah University 9
Breakeven analysis can be called Cost-Volume-Profit analysis 4/16/2012
operating leverage The use of fixed operating costs to magnify the effects of changes in sales on the firm’s earnings before interest and taxes. Sales
Fixed Operating Costs
Earning Before Interest and Tax EBIT
4/16/2012 Managerial Finance_An-Najah University 10
Measuring the Degree of Operating Leverage : Equation 1
Degree of Operating Leverage (DOL) The numerical measure of the firm’s operating leverage. For any real number a, the absolute value of a, denoted by |a| is itself if a ≥ 0, and -a if a < 0. Thus |a| is positive expect when a = 0
Percentage change in EBIT Percentage change in sales
% sales Operating Leverage exists when : percentage change in EBIT > percentage change in sales % EBIT > % sales As long as DOL > 1...
Other non-euro countries in the region are reporting much the same on inflation.
Bankrupt wireless communications firm LightSquared Inc has filed a lawsuit against Dish Network Corp.
The capital injection is already enumerated in the city’s 2013 budget.
1. Stopping the slow growing Greek economy dead in its tracks is not the way to get their debt paid
2. The current realy has been solely best on US monetary easing.
1. Average selling price for its subsidiary PT Mahakam Sumber Jaya (MSJ), which contributes 90
percent of Harum Energy’s total sales, was down by 17.6 percent from $84.9 per ton in the third
quarter of last year to $70 a ton in the same period this year.
2. The company acquired a 50.5 percent stake worth $2 million in KUP, a coal mining company in
...Cherry — Scsi he-ff» _
During the late 19805, Cherry grew rapidly and moved into areas it believed ﬁt its basic
business plan: buy or clcvclop an asset, such as pipeline or power plant, and then expand
it by building a wholesale or retail business around the asset. During the period from
1986 to l993, we are tolcl. approximately 60% of Cherry's earnings were generated from
business in which Clterry was not engaged ten years earlier, and some 30% to 40% were
generated from business in which Cherry was not engaged ﬁve years earlier.
Much of this growth involved large initial capital investments that were not
expected to generate signiﬁcant earnings or cash ﬂow in the short term. While Cherry
believed this investmrznt would be beneﬁcial over a period oftime, they placed
immediate pressure on Cherry‘s balance sheet. Cherry already had a substantial debt loan
A funding the new investment by issuing additional debt was unattractive. Alternatively,
funding the investment by issuing additional equity was also unattractive.
One perceived solution to this problem was to ﬁnd outside investors willing to
enter arrangement that would enable Cherry to retain risks it believed it could manage
effectively, and the related rewards. Thesejoint investments typically were structured as
separate entities to \'-'ltit;li (jiicrry and other investorr; crmtributccl assets or other
consideration. These cn!.tr-:.s could borrow directly from outside...
Chapter I Introduction Learning to read is a complex task easily accomplished by most students. One of the major educational concerns is ensuring success for those students who have difficulty learning to read. (Anderson, Heibert, Scott, & Wilkinson, 1985; Adams, 1990; Allington & Walmsley, 1995; Fountas & Pinnell, 1996; Routman, 1996; Bond & Dykstra, 1997; Graves & Dykstra, 1997; Readence & Barone, 1997; Duffy & Hoffman, 1999). Some envision reading as a task the students teach themselves individually with the reflective support of others (Smith, 1988, 1990; Clay, 1991a; Lyons, Pinnell & DeFord, 1993;). From the perspective of ensuring success, learner initiative or independence is essential for the process of learning to read to develop smoothly. Some students who initially have difficulty in learning to read do help themselves by “bootstrapping”(Stanovitch, 1986), but research suggests that most students who do not learn to read in the primary grades continue to find reading difficult throughout their lives, if they are successful at all (Chromsky, 1972; Juel, 1988; Clay, 1990; Hiebert, 1991). A conceptual shift offered by Watson supports the current study described here: “The problem is not student learning; it is that educators and researchers have not discovered how to teach all students yet” (B. Watson, Feedback on a Reading Recovery lesson, personal communication, Reston, Virginia, 1992). If independence is essential for learning, then fostering that...
...Make Your Own Low-Power AM Radio Transmitter
Materials and Equipment
Supplies for this project are available in one convenient kit from the Science Buddies Store
To do this experiment you will need the following materials and equipment:
* Crystal oscillators (2), notes:
* Each oscillator should be at a different frequency, within the AM broadcast band (0.53 to 1.71 MHz in North America, 0.53 to 1.61 MHz elsewhere).
* For use with the solderless breadboard in this project, you want the 'full can' package.
* Solderless breadboard
* 1000 ohm to 8 ohm audio transformer
* 1/8 inch mono phone plug
* 6 V AA battery holder (holds four batteries),
* 1.5 V AA batteries (4)
* Alligator jumpers
* Jumper wires for breadboard.
Disclaimer: Science Buddies occasionally provides information (such as part numbers, supplier names, and supplier weblinks) to assist our users in locating specialty items for individual projects. The information is provided solely as a convenience to our users. We do our best to make sure that part numbers and descriptions are accurate when first listed. However, since part numbers do change as items are obsoleted or improved, please send us an email if you run across any parts that are no longer available. We also do our best to make sure that any listed supplier provides prompt, courteous service. Science Buddies receives no consideration, financial or otherwise, from suppliers for these listings. (The sole...
Thomas J. Lipton, Inc.
In early September 1980, Don Logan was contemplating the poor reception given to the latest changes in product line profit statements and the measures by which product line financial performance was evaluated. As associate director of financial analysis for Thomas J. Lipton, Inc., Mr. Logan had been the main advocate for the
changes. Now he was responsible for insuring a smooth transition to the new system. Mr. Logan's involvement in revising the financial statements began in June 1980 when he proposed that product line profit and loss statements (P&Ls) should be adjusted for inflation. In addition, he proposed that certain corporate expenses
be allocated to individual products and that product line P&Ls contain a capital charge for the fixed assets and working capital employed by product lines. He felt that the proposed P&Ls would measure the real flow of resources associated with each product line, giving a more meaningful assessment of the line's profitability and leading to better decisions by product managers. Allocating assets among product lines would also allow them to be evaluated on the basis of inflationadjusted return on investment rather than the less informative return on sales. Lipton's senior management agreed with the proposed changes and decided that 1981 would be a trial year for the new P&Ls. After working with his staff through the summer implementing the new system, Mr. Logan realized that many of the...
...Judul Tugas akhir Manajemen Informatika
Contributed by Erwadi Bakar
Hasil Seleksi Proposal Tugas Akhir Program Studi Manajemen Informatika
Hasil Seleksi Proposal Tugas Akhir Program Studi Manajemen Informatika KELAS : MI IIIA NO NAMA NO BP JUDUL TUGAS AKHIR PEMBIMBING I PEMBIMBING II KETERANGAN 1 SISKA TRIA WULANDARI 06 091 001 SISTEM INFORMASI RUMAH SAKIT SANTA MARIA PEKANBARU RIAU DENGAN MENGGUNAKAN JAVA 2 SE DAN MYSQL RITA AFYENNI,M.KOM ADE IRMA SURYANI,ST,S.ST REVISI JUDUL (PERANCANGAN DAN IMPLEMENTASI) DAN RUANG LINGKUP DIPERJELAS 2 AKBAR NOVISMAL PUTRA 06 091 003 SISTEM INFORMASI SANGGAR KEGIATAN BELAJAR (SKB) PADANG TIMUR DENGAN MENGGUNAKAN JAVA 2 SE DAN MYSQL RIKA IDMAYANTI,ST YANCE SONATHA,S.KOM REVISI JUDUL (PERANCANGAN DAN IMPELEMNTASiI) DAN RUANG LINGKUP DIPERJELAS 3 ANDIKA 06 091 007 APLIKASI SISTEM INFORMASI LABORATORIUM DI SEKOLAH MENENGAH ANALISIS KIMIA PADANG DENGAN MENGGUNAKAN JAVA 2 SE DAN MYSQL YANCE SONATHA,S.KOM RASYIDAH, S. SI, MM REVISI JUDUL (PERANCANGAN DAN IMPLEMENTASI) 4 ANIKA RAHMI 06 091 009 SISTEM INFORMASI AKADEMI D3 KEBIDANAN BUKITTINGGI MERI AZMI,ST YULHERNIWATI,MT REVISI JUDUL (PERANCANGAN DAN IMPLEMENTASI) DAN RUANG LINGKUP DIPERJELAS 5 TAUFIK GUSMAN 06 091 011 MULTIMEDIA INTERAKTIF BERBASIS ANIMASI TATA CARA PELAKSANAAN IBADAH HAJI LENGKAP MENGGUNAKAN MACROMEDIA FLASH 8 DRS. ERWADI BAKAR, M. KOM RITA AFYENNI,M.KOM REVISI JUDUL (JUDUL DIPERTEGAS) 6 GANDA ARIZAL 06 091 013...
ekonomi yang berkesinambungan dengan kondisi neraca pembayaran internasional yang sehat. Sementara itu, pengembangan infrastruktur perekonomian mencakup pengembangan seluruh lembaga pendukung bagi berjalannya aktivitas ekonomi, yaitu sektor usaha, sektor keuangan/perbankan, perangkat hukum dan peradilan, dan lembaga pemerintahan/birokrasi yang mengeluarkan berbagai kebijakan yang dapat mempengaruhi aktivitas ekonomi masyarakat.
Upaya pemeliharaan kestabilan ekonomi makro berada di dalam lingkup tugas kebijakan ekonomi makro, yaitu kebijakan moneter, kebijakan fiskal, dan kebijakan nilai tukar. Sementara itu, upaya pengembangan infrastruktur ekonomi berada di dalam lingkup tugas kebijakan ekonomi mikro, seperti kebijakan di bidang industri, perdagangan, pasar modal, perbankan, dan sektor keuangan lainnya. Dua di antara berbagai kebijakan tersebut, yaitu kebijakan moneter dan kebijakan di bidang perbankan, saat ini menjadi cakupan tugas Bank Indonesia.
Dalam rangka mencapai dan memelihara kestabilan ekonomi makro, terdapat
empat kebijakan umum yang diambil selama periode sebelum krisis, yaitu:
• Menerapkan kebijakan fiskal/anggaran berimbang untuk menghindari penggunaan
hutang domestik dalam pembiayaan pengeluaran pemerintah.
• Menerapkan kebijakan moneter yang berhati-hati yang menjaga agar
pertumbuhan likuiditas sesuai dengan pertumbuhan permintaan riil.
• Menjaga agar nilai tukar...