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Degree of operating leverage (DOL):
It is the ratio of gross profit to net operating income.
Calculate the degree of operating leverage as follows:
Degree of financial leverage (DFL):
It is the ratio of net operating income to earnings before tax.
Calculate the degree of financial leverage as follows:
Degree of total leverage (DTL):
It is the ratio of gross profit to earnings before tax.
Calculate the degree of total leverage as follows:
By using the income statement calculate the degree of operating leverage, degree of financial leverage and degree of total leverage.
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Chapter 12 Solutions
CFIN (with MindTap Finance, 1 term (6 months) Printed Access Card) (MindTap Course List)
- Selected information from the annual financial statements of Delicata Industries is shown below. ($ in thousands) Revenue Operating income Net other income(expense) Net income 240,000 5,600 196,480 Average operating assets 4,200,000 Average operating liabilities 1,800,000 Current Financials $1,500,000 Delicata has an income tax rate of 20%. a. What is Delicata's net operating profit after taxes (NOPAT) for the year? $0 b. Calculate Delicata's net operating profit margin (NOPM) for the year. Result Numerator + Denominator = 0 + $ 0 = NOPM $ c. Calculate Delicata's return on net operating assets (RNOA) for the year. Numerator + Denominator = Result 0 + $ 0 = RNOA $ 96arrow_forwardThe following information was extracted from the Income Statement of Benguela Limited for 2020 financial year. Income Statement for the year ended 31 December 2020 Sales (35 000 units at N$250) 8 750 000 Variable cost (35 000 at N$70) 2 450 000 Contribution 6 300 000 Fixed cost 3 000 000 Earnings before interest and tax 3 300 000 Interest expense 1 700 000 Earnings before tax 1 600 000 Taxation   480 000 Earnings after tax 1 120 000  Required: Calculate the degree of operating leverage and Calculate the degree of financial leverage?arrow_forwardThe following information are available for Showan Inc: Operating Profit Margin 21%, taxes of 35%, interest expense of 120,000, sales of 3,527,000, cost of good sold 1,990,000, and total assets of 2,347,500. compute for the times interest earned ratio a. 10.15 times b. 6.75 times c. 6.17 times d. 7.20 timesarrow_forward
- Barrera Corporation provides the following financial​ information:  Minimum acceptable operating income $556,600 Average total assets $2,000,000 Operating income $708,000 Return on investment 35.4​% Net sales $800,000  Calculate the target rate of return.​ (Round your answer to two decimal​ places.)arrow_forwardThe most recent financial statements for Bello Company are shown here: Income Statement Sales Costs Taxable income Taxes (24%) Balance Sheet $ 14,000 Current assets $ 30,188 8,400 Fixed assets Debt 21,125 Equity $29,753 21,560 $5,600 Total $51,313 Total $51,313 1,344 Net income $ 4,256 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 24 percent dividend payout ratio. What is the sustainable growth rate?arrow_forwardThe most recent financial statements for Shinoda Manufacturing Co. are shown below. Income Statement Sales Balance Sheet Costs $ 64,200 44,680 Current assets Fixed assets Taxable income Tax (35%) $19,520 6,832 Total $ 28,000 Debt 80,900 Equity $108,900 Total $ 44,200 64,700 $108,900 Net Income $ 12,688 ok ht Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 43 percent dividend payout ratio. No external equity financing is possible. What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Sustainable growth rate 1%arrow_forward
- Use the information below provided by Angel Baby Angel Company: Sales    8,250,000.00 Operating costs    4,725,000.00 Operating income    3,525,000.00 Interest expense    1,750,000.00 Earnings before taxes    1,775,000.00 Taxes (40%)       621,250.00 Net income    1,153,750.00            WACC = 8%, Total invested capital 24,875,000. Calculate the EVA. (2 decimal places)arrow_forwardThe most recent financial statements for Mc Govney Co. are shown here: Income Statement Sales Costs Taxable Income Taxes (34%) Net Income Current Asset Fixed Asset $46,911 $38,882 ? ? ? Balance Sheet $20,638 Long-term Debt Equity $88,120 $45,042 ? Assets and costs are proportional to sales. The company maintains a constant 19 percent dividend payout ratio and a constant debt-equity ratio. What is the maximum increase in sales (in $) that can be sustained assuming no new equity is issued?arrow_forwardCalculate the profit margin (net income / sales) for the firm below. Sales 1400, COGS $1,200, Depreciation $800, Interest $500, Net Income 300, Total Assets $5,000arrow_forward
- The most recent financial statements for Mandy Company are shown here:  Income Statement Balance Sheet Sales $ 19,200 Current assets $ 11,760 Debt $ 15,880 Costs 13,050 Fixed assets 27,450 Equity 23,330       Taxable income $ 6,150 Total $ 39,210 Total $ 39,210       Taxes (24%) 1,476           Net income $ 4,674             Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 45 percent dividend payout ratio. What is the internal growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded 2 decimal places, e.g., 32.16.)arrow_forwardThe most recent financial statements for Mandy Company are shown here: Income Statement Sales Costs $19,000 12,880 Current assets Fixed assets Balance Sheet $ 11,720 Debt 26,550 Equity $ 15,760 22,510 Taxable income $ 6,120 Total $ 38,270 Total $ 38,270 Taxes (21%) 1,285 Net Income $ 4,835 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 35 percent dividend payout ratio. What is the sustainable growth rate? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Sustainable growth rate %arrow_forwardThe following information of Red Oak Manufacturing is available for the current year: Net income $844,200 Net sales 6,809,000 Average total assets 5,911,000 Average stockholders' equity 2,575,000 The total leverage as per the DuPont analysis computation isarrow_forward
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