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Copyright, 2008, JaxWorks, All Rights Reserved.
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Sales (1000 CDs @ $10) $10,000
Less: Costs associated with production:
Employee costs (1000 CDs @ $0.50): $500
Materials costs (1000 CDs @ $5): $5,000
Packaging costs (1000 CDs @ $1): $1,000
Total variable costs: $6,500
Contribution margin: $3,500
Calculating The Contribution Margin - Figure 1
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CDs Sold: 4510
Sales @ $10 per CD #NAME?
Less: Variable costs of production:
Employee costs (semi-variable): #NAME?
Materials costs (variable) #NAME?
Packaging costs (variable) #NAME?
Total variable costs: #NAME?
Contribution margin: #NAME?
Contribution Margin Analysis - Figure 2
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Employee cost calculation Employee costCDsMade UnitCost per quantity
0 $0.50 #NAME?1000 $0.60 #NAME?2000 $0.70 #NAME?3000 $0.80 #NAME?4000 $0.90 #NAME?5000 $1.00 #NAME?
MaterialsCost: $5.00
PackagingCost: $1.00
Per
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CDs Sold #####Total Per Unit % of Margin
Sales (CDs @ $10 each) #NAME? $10.00 100.00%
Less:Labor (CDs at semi-variable per CD) #NAME? #NAME? #NAME?
Materials (CDs at $5 per CD) #NAME? $5.00 50.00%Packaging costs @ $1 per CD #NAME? $1.00 10.00%
Contribution Margin #NAME? #NAME? #NAME?
CDs Sold 5510Total Per Unit % of Margin
Sales (CDs @ $10 each) $55,100.00 $10.00 100.00%
Less:Labor (CDs at semi-variable per CD) #NAME? #NAME? #NAME?
Materials (CDs at $5 per CD) $27,550.00 $5.00 50.00%Packaging costs @ $1 per CD $5,510.00 $1.00 10.00%
Contribution Margin #NAME? #NAME? #NAME?
Unit and Percent of Sales Contribution Analysis - Figur
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Total Per unitSales $2,000 $20
Less:Materials $400 $4
Labor $900 $9Variable Overhead $300 $3
Contribution margin: $400 $4
Quantity Sold or Produced 100
Operating Income Statement - Figure
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Percent of margin100% Sales
Less:20% Material45% Labor15% Variable Overhead20% Contribution margin:
Quantity Sold or Produced
Excel Formulas for Operating Income
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Total Per unit Percent of marginAN16*AO8 $20 100%
$AN$16*AO10 $4 AO10/$AO$8$AN$16*AO11 $9 AO11/$AO$8$AN$16*AO12 $3 AO12/$AO$8AN8-SUM(AN10:AN12) AO8-SUM(AO10:AO12) AO13/$AO$8
100
Statement - Figure 5
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Fixed costs Sales price Variable cost50 20 15
Using Goal Seeker to Find Break-Even - Figure 6
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Break-Even units Volume (units) Fixed Costs10 1 $50
2 $503 $504 $505 $506 $507 $508 $509 $50
10 $50
Fixed Costs - Figure 7
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Volume (units) Variable Costs1 $15
2 $303 $454 $605 $756 $907 $1058 $1209 $135
10 $150
Variable Costs - Figure 8
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Volume Fixed(units) Costs
1 $502 $503 $504 $505 $506 $507 $508 $50
9 $5010 $5011 $5012 $50
13 $5014 $50
15 $5016 $5017 $5018 $5019 $50
The Classic Break-Eve
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Variable Total TotalCosts Costs Sales
$15 $65 $20$30 $80 $40$45 $95 $60$60 $110 $80$75 $125 $100$90 $140 $120
$105 $155 $140$120 $170 $160
$135 $185 $180$150 $200 $200$165 $215 $220$180 $230 $240
$195 $245 $260$210 $260 $280
$225 $275 $300$240 $290 $320$255 $305 $340$270 $320 $360$285 $335 $380
Point Chart - Figure
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Sales Price per Unit = $20Volume (units) Discount Revenue
5 0.0% $10010 2.5% $19515 5.0% $28520 7.5% $37025 10.0% $45030 12.5% $52535 15.0% $59540 17.5% $660
45 20.0% $72050 22.5% $77555 25.0% $82560 27.5% $870
65 30.0% $91070 32.5% $945
75 35.0% $97580 37.5% $1,00085 40.0% $1,02090 42.5% $1,035
Non-linear Revenue Growth From Giving Discounts - Figu
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re 10 No
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Sales Price per Unit = $20Volume Supplier Variable Sales Contribution
(units) Discount Costs margin5 0.0% $75 $100 $25
10 2.5% $146 $200 $5415 5.0% $214 $300 $8620 7.5% $278 $400 $12325 10.0% $338 $500 $16330 12.5% $394 $600 $20635 15.0% $446 $700 $254
40 17.5% $495 $800 $30545 20.0% $540 $900 $36050 22.5% $581 $1,000 $41955 25.0% $619 $1,100 $481
60 27.5% $653 $1,200 $54865 30.0% $683 $1,300 $618
70 32.5% $709 $1,400 $69175 35.0% $731 $1,500 $76980 37.5% $750 $1,600 $85085 40.0% $765 $1,700 $93590 42.5% $776 $1,800 $1,024
-linear Increases In The Contribution Margin From Purchase Discounts - Figure
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Sal
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Fixed costs = $34,000
8-oz. Per 6-oz. Per 4-oz. PerPackage size Unit Unit UnitSales (units) 10,000 15,000 20,000Sales (dollars) $74,000 $7.40 $94,050 $6.27 $102,600 $5.13
Less variable costs $37,500 $3.75 $50,850 $3.39 $60,600 $3.03(as % of Sales) 51% 54% 59%
Contribution margin $36,500 $3.65 $43,200 $2.88 $42,000 $2.10(as % of Sales) 49% 46% 41%
Sales mix 27% 35% 38%
Break-Even $68,932 $74,021 $83,057
s Mix Analysis - Figure 1
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Fixed costs = $34,000
8-oz. PerTotal Package size Unit
Sales (units) 15,000$270,650 Sales (dollars) $111,000 $7.40
$148,950 Less variable costs $56,250 $3.7555% (as % of Sales) 51%
$121,700 Contribution margin $54,750 $3.6545% (as % of Sales) 49%
100% Sales mix 42%
$75,613 Break-Even $68,932
Redistribution of Sales Mix To Increase Profits - Fig
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6-oz. Per 4-oz. PerUnit Unit Total
20,000 5,000$125,400 $6.27 $25,650 $5.13 $262,050
$67,800 $3.39 $15,150 $3.03 $139,20054% 59% 53%
$57,600 $2.88 $10,500 $2.10 $122,85046% 41% 47%
48% 10% 100%
$74,021 $83,057 $72,525
ure 13 An
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The Classic Break-Even Point Chart - Figure 9
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MONTHS REVENUE
FIXED
COSTS
VARIABLE
COSTS
TOTAL
COSTS
TOTAL
PROFIT X AXIS
0 $0 $170,124 $0 $170,124 -$170,124
1 $80,652 $170,124 $67,183 $237,307 -$156,656 Jan2 $161,303 $170,124 $134,366 $304,490 -$143,187 Feb3 $241,955 $170,124 $201,549 $371,673 -$129,719 Mar
4 $322,606 $170,124 $268,732 $438,856 -$116,250 Apr
5 $403,258 $170,124 $335,915 $506,039 -$102,782 May
6 $483,909 $170,124 $403,099 $573,223 -$89,314 Jun
7 $564,561 $170,124 $470,282 $640,406 -$75,845 Jul
8 $645,212 $170,124 $537,465 $707,589 -$62,377 Aug9 $725,864 $170,124 $604,648 $774,772 -$48,908 Sep
10 $806,515 $170,124 $671,831 $841,955 -$35,440 Oct
11 $887,167 $170,124 $739,014 $909,138 -$21,971 Nov
12 $967,818 $170,124 $806,197 $976,321 -$8,503 Dec
MONTHS REVENUE
FIXED
COSTS
VARIABLE
COSTS
TOTAL
COSTS
TOTAL
PROFIT X AXIS
0 $0 $170,124 $0 $170,124 -$170,124
1 $80,652 $170,124 $58,850 $228,974 -$148,322 Jan
2 $161,303 $170,124 $117,700 $287,824 -$126,521 Feb3 $241,955 $170,124 $176,549 $346,673 -$104,719 Mar
4 $322,606 $170,124 $235,399 $405,523 -$82,917 Apr
5 $403,258 $170,124 $294,249 $464,373 -$61,115 May
6 $483,909 $170,124 $353,099 $523,223 -$39,314 Jun
7 $564,561 $170,124 $411,948 $582,072 -$17,512 Jul
8 $645,212 $170,124 $470,798 $640,922 $4,290 Aug
9 $725,864 $170,124 $529,648 $699,772 $26,092 Sep10 $806,515 $170,124 $588,498 $758,622 $47,894 Oct
11 $887,167 $170,124 $647,347 $817,471 $69,695 Nov
12 $967,818 $170,124 $706,197 $876,321 $91,497 Dec
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Current ProjectedSales $ $967,818 $967,818 Sales $ $967,818
Fixed $ $170,124 $170,124 Fixed $ $170,124
Total Variable $ $806,197 $706,197 Total Variable $ $806,197
Total Variable % 83.30% 72.97%
Profit $ $(8,503) $91,497
Break-Even % 105.26% 65.03%
BE Dollars $1,018,736 $629,342
BE Date Jan 18 Aug 24
Current Pie
Fixed % 17.58%
Total Variable % 83.30%
Profit % (0.88%)
Click Here For Large View
Current BE Chart
THE B/E POINT IS IN NEXT YEAR
BECAUSE PROFIT IS NEGATIVE.
Click Here For Large View
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Sales $ $967,818
Fixed $ $170,124
Total Variable $ $706,197
Projected PieFixed % 17.58%
Total Variable % 72.97%
Profit % 9.45%
Click Here For Large View
Projected BE Chart
Click Here For Large View
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Return To Data Entry
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Return To Data Entry
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Return To Data Entry
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Current Pie
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Return To Data Entry
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Projected Pie
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Return To Data Entry
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Of course, there are other considerations ou must take into account. You would
So, o eratin levera e cuts both wa s. A ood decision can increase our rofita
Case Stud : Com arin the De ree of O eratin Levera eFor a more detailed exam le, consider three different s ecialt stores whose o er
Store A has decided to incur the lowest fixed and hi hest variable costs of the th
O eratin income er box: $17.00
If ou can remove the cost of desi n and la out, our total costs will dro from $1
On the other hand, urchasin a com uter and a modem will cost $1,400. This wil
You should base our decision on how de endable our business card orders are
Now su ose that our business card orders are not so de endable. Most of our
If the timin of our investment in the com uter coincides with a dro in orders for
You own a small com an that rints customized reetin cards. At resent, our
One of our em lo ees su ests that, if ou urchase a ersonal com uter and a
You review some recent orders and find that ou aid an em lo ee an avera e of
Variable $0.03 er card for 500 cards = $15.00 Fixed desi n and la out er box = $3.00 Total cost er box: $18.00
You can find lent of exam les of this henomenon in a stack of annual re orts f
The likelihood of ex eriencin these kinds of swin s is one reason that mana ers
An additional conce t that is useful in inter retin the risks due to o eratin lever
Anal zin O eratin Levera eO eratin levera e is the extent to which a firms o erations involve fixed o eratin
Case Stud : Greetin Cards
-
The conce ts of o eratin levera e and financial levera e are ke to an accurate
A firms de ree of financial levera e is the extent to which that firm finances its as
Toda it is almost im ossible for a firm to succeed financiall without usin
However, with increased levera e comes increased risk. If our com an choose
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Store AFixed costs: $20,000.00 Variable costs: $1.50 Unit price:
Units Sold (000) Sales Fixed costs Variable Costs Total Costs
20 #NAME? #NAME? $30,000 #NAME?
50 #NAME? #NAME? $75,000 #NAME?
80 #NAME? #NAME? $120,000 #NAME?
110 #NAME? #NAME? $165,000 #NAME?
140 #NAME? #NAME? $210,000 #NAME?
170 #NAME? #NAME? $255,000 #NAME?
200 #NAME? #NAME? $300,000 #NAME?
Store BFixed costs: $40,000.00 Variable costs: $1.20 Unit price:
Units Sold (000) Sales Fixed costs Variable Costs Total Costs
20 #NAME? #NAME? $24,000 #NAME?
50 #NAME? #NAME? $60,000 #NAME?
80 #NAME? #NAME? $96,000 #NAME?
110 #NAME? #NAME? $132,000 #NAME?
140 #NAME? #NAME? $168,000 #NAME?
170 #NAME? #NAME? $204,000 #NAME?
200 #NAME? #NAME? $240,000 #NAME?
Store B has decided to incur fixed costs that are hi her than that of Store A, but
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Store CFixed costs: $60,000.00 Variable costs: $1.00 Unit price:
Units Sold (000) Sales Fixed costs Variable Costs Total Costs
20 #NAME? #NAME? $20,000 #NAME?
50 #NAME? #NAME? $50,000 #NAME?
80 #NAME? #NAME? $80,000 #NAME?
110 #NAME? #NAME? $110,000 #NAME?
140 #NAME? #NAME? $140,000 #NAME?
170 #NAME? #NAME? $170,000 #NAME?
200 #NAME? #NAME? $200,000 #NAME?
Store A Store B Store C
Fixed costs: $20,000 $40,000 $60,000
Variable costs: $1.50 $1.20 $1.00
Sales price: $2.00 $2.00 $2.00
Store C has decided to incur the hi hest fixed and lowest variable costs of the th
The exam les above dis la an anal sis of each stores sales and Earnin s Befo
The exam les also make some trends evident. These trends are conse uences o
Store A which has the lowest fixed cost and the hi hest er unit cost will break e
Store B, which has fixed costs that fall between Store A and Store B, breaks even
Store C, which has the hi hest fixed costs and the lowest er unit sales cost, brea
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Store A
Units Sold (000) Sales Fixed costs Variable Costs Profits
20 $40,000 $20,000 $30,000 $(10,000)
50 $100,000 $20,000 $75,000 $5,000
80 $160,000 $20,000 $120,000 $20,000
110 $220,000 $20,000 $165,000 $35,000
140 $280,000 $20,000 $210,000 $50,000
170 $340,000 $20,000 $255,000 $65,000
200 $400,000 $20,000 $300,000 $80,000
Store B
20 $40,000 $40,000 $24,000 $(24,000)
50 $100,000 $40,000 $60,000 $0
80 $160,000 $40,000 $96,000 $24,000
110 $220,000 $40,000 $132,000 $48,000
140 $280,000 $40,000 $168,000 $72,000
170 $340,000 $40,000 $204,000 $96,000
200 $400,000 $40,000 $240,000 $120,000
Store C
20 $40,000 $60,000 $20,000 $(40,000)
50 $100,000 $60,000 $50,000 $(10,000)
80 $160,000 $60,000 $80,000 $20,000
110 $220,000 $60,000 $110,000 $50,000
140 $280,000 $60,000 $140,000 $80,000
170 $340,000 $60,000 $170,000 $110,000
200 $400,000 $60,000 $200,000 $140,000
De ree of O eratin Levera e DOLAnother wa to understand how o eratin levera e im acts our com an s rofit
DOL = Units* Price-Variable Cost / Units* Price-Variable Cost -Fixed Cost
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Store A Store B Store C
Fixed costs: $20,000 $40,000 $60,000
Variable costs: $1.50 $1.20 $1.00
Sales price: $2.00 $2.00 $2.00
Units Sold
'000 Sales Fixed costs Variable costs
Store A 120 $240,000 $20,000 $180,000
Store A 200 $400,000 $20,000 $300,000
Store B 120 $240,000 $40,000 $144,000
Store B 200 $400,000 $40,000 $240,000
Store C 120 $240,000 $60,000 $120,000
Store C 200 $400,000 $60,000 $200,000
Store A Store B Store C
Fixed costs: $20,000 $40,000 $60,000
Variable costs: $1.50 $1.20 $1.00
Sales price: $2.00 $2.00 $2.00
Units Sold
'(000) Sales Fixed costs Variable costs
Store A 200 $400,000 $20,000 $300,000
Store A 120 $240,000 $20,000 $180,000
However, the calculated DOL will be the same on the downside. So for ever decr
Store A, for exam le, has a DOL of 1.5 with unit sales of 120,000:DOL =120 000* 2.00- 1.50 / 120 000* 2.00- 1.50 = 20 000DOL = 1.5
These calculations uantif the data shown in exam le below. The numbers indic
Each store sells the same number of units: 120,000 or 200,000. Each store sells t
Ex ressed in raw dollar amounts, an increase in unit sales from 120,000 to 200,0
or, e uivalentl :DOL = Contribution Mar in/ Contribution Mar in Fixed CostUsin the data for the three s ecialt stores, one can calculate the DOL at the oi
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Store B 200 $400,000 $40,000 $240,000
Store B 120 $240,000 $40,000 $144,000
Store C 200 $400,000 $60,000 $200,000
Store C 120 $240,000 $60,000 $120,000
Units sold per month 20,000 Unit variable costs $0.60
Average unit sales price $2.20 Current fixed costs $10,000
Contribution margin $202,986
DOL 2.45
Fixed Variable
1994 sales month Units Sales costs Costs
January 6,582 $14,480 $10,000 $3,949
February 11,121 $24,466 $10,000 $6,673
March 14,178 $31,192 $10,000 $8,507
April 13,692 $30,122 $10,000 $8,215
May 11,597 $25,513 $10,000 $6,958
June 9,599 $21,118 $10,000 $5,759
July 9,913 $21,809 $10,000 $5,948
August 10,926 $24,037 $10,000 $6,556
September 14,349 $31,568 $10,000 $8,609
October 12,965 $28,523 $10,000 $7,779
November 6,972 $15,338 $10,000 $4,183
December 4,972 $10,938 $10,000 $2,983
Sum:
Standard Deviation:
The DOL ives mana ers a reat deal of information for settin o eratin tar ets
Case Stud : Hot-do SalesHotDo Man is a small business that sells s ecialt coffee drinks at office buildin
The cost of trans ortation to and from the sales area, lus the ower demands of
HotDo Man resentl has fixed costs of $10,000 er month. The lease of a new
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Units sold per month 20,000 Unit variable costs $0.35
Average unit sales price $2.20 Current fixed costs $10,000
Additional monthly lease Contribution margin $234,702
payment, new offices: $2,200 DOL 2.66
Projected fixed costs: $12,200
Fixed Variable
1994 sales month Units Sales costs Costs
January 6,582 $14,480 $12,200 $2,304
February 11,121 $24,466 $12,200 $3,892
March 14,178 $31,192 $12,200 $4,962
April 13,692 $30,122 $12,200 $4,792
May 11,597 $25,513 $12,200 $4,059
June 9,599 $21,118 $12,200 $3,360
July 9,913 $21,809 $12,200 $3,470
August 10,926 $24,037 $12,200 $3,824
September 14,349 $31,568 $12,200 $5,022October 12,965 $28,523 $12,200 $4,538
November 6,972 $15,338 $12,200 $2,440
December 4,972 $10,938 $12,200 $1,740
Sum:
Standard Deviation:
Unit Unit Total Fixed
Sales Price Sales Costs
Our market research leads us to believe that to sell an additional 80,000 units w Neither total fixed costs nor unit variable costs will chan e durin this ear.Based on these assum tions, the chan e in net o eratin income for each firm w
But if HotDo Mans owners fre uentl take rofits out of the business, so that it h
Mana ers can use the DOL to lan not onl their o erations, as was done in the
Variabilit in rofit levels, whether measured as EBIT, o eratin income, or net in
Plannin b Usin the DOLIn Januar for exam le the mana ers of Firms A B and C mi ht set out their an
We want to increase our sales volume from 120,000 to 200,000.
Althou h the lease of new offices would increase the fixed costs, a careful estima
But look at the chan e in the variabilit of the rofit from month to month. From N
The exam le above indicates that b movin some of the ex enses from the cate
This increase in variabilit is reflected in the month-to-month standard deviation ofThe increase in variabilit is also reflected in the HotDo Mans DOL. As shown in
If HotDo Man has lent of mone in the bank to meet unex ected ex enses su
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Firm A 120,000 $2.00 #NAME? $20,000
200,000 $1.70 #NAME? $20,000
Firm B 120,000 $2.00 #NAME? $40,000
200,000 $1.70 #NAME? $40,000
Firm C 120,000 $2.00 #NAME? $60,000
200,000 $1.70 #NAME? $60,000
Total Total Debt
Debt Assets Ratio
Firm A $0 $10,000 0%
Firm B $2,000 $10,000 20%
Firm C $5,000 $10,000 50%
The Debt Ratio measures the ro ortion of a firms total assets that are financed
The ac uisition of additional debt, of course, chan es a com an s de ree of fina
Su ose that ou can obtain a loan at 9 ercent interest to finance the ac uisition
Clearl , financial levera e is an im ortant indicator to investors should I bu this
The ratios rovide mana ers, anal sts, investors, and creditors with useful indicati
Determinin the Debt RatioThe Debt Ratio is the ratio of total debt to total assets. Another term for the Debt
Financial levera e is the extent to which a com an finances the ac uisition of its
In contrast, financial risk is the additional ex osure, above and be ond business ri
Su ose for exam le that ou decide to start a business that offers trainin clas
If ou obtain a loan to finance the urchase of com uter workstations for our clie
It is useful to se arate business from financial risk to make decisions ertainin to
A thorou h understandin of the debt that our com an has assumed si nificantl
As before Firm C has a hi her DOL than either Firms A or B. Althou h the mana
Performin an anal sis of the im acts that levera e can have on a firms rofitabili
Anal zin Financial Levera e
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EBIT Interest Times Interest
Earned
Firm A $200,000 $30,000 6.7
Firm B $200,000 $50,000 4.0
Firm C $200,000 $100,000 2.0
Co ri ht, 2008, Jaxworks, All Ri hts
Determinin the Times Interest Earned RatioTimes Interest Earned refers to the number of times that interest a ments are co
The Times Interest Earned ratios in the exam le indicate that Firm A, because it h
Firm C runs a reater risk of financial difficult than the other two firms. This is be
SummarIn the business environment of the new millennium, o eratin and financial levera
For exam le, a com an s value is in lar e measure a function of the value of its
On the other hand, a com an with a low debt ratio has used its e uit to ac uire
A firms debt ratio is also a useful indicator of how well it will weather difficult finan
In debt ratio exam le, Firm C has the hi hest debt ratio. This im lies that if the fir
The E uit Ratio is the o osite of the Debt Ratio. It returns the ratio of a firms e
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ant to consider how man of our customers have
ilit dramaticall , once ou have broken even on
ations are identical in all res ects, exce t for the
ree stores. It has little in the wa of s ecial
.00 to $15.00 er order and our o eratin income
l introduce a new, fixed cost to the roduction of
. Su ose that ou have a stead stream of
business de ends on the atrona e of one lar e
reetin cards the com uter could sit idle for
variable o eratin costs are $0.03 er card to rint
modem, our customers could send their own
$3.00 er order to do the desi n and la out. So
rom the 1980s. Within that stack ou can find
, anal sts, and stockholders must a l the
e and financial levera e is business risk.
ex enses. Mana ers can define the de ree of
anal sis of a com an s value. A firm is levera ed
sets b borrowin . More s ecificall , financial
some form of levera e. Firms commonl use
to be hi hl levera ed, it must be willin to acce t
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$2.00
Profits
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
$2.00
Profits
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
o kee its variable costs lower than Store A. This
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$2.00
Profits
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
ree. It has invested heavil in e ui ment that not
e Interest and Taxes EBIT for a iven uantit of
f each stores decision as to the relationshi
en faster than Store B and Store C. However
slower than Store A but faster than Store C. Once
ks even more slowl than the other two stores. But
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abilit is b calculatin the De ree of O eratin
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EBIT DOL
$40,000 1.50
$80,000 1.25
$56,000 1.71
$120,000 1.33
$60,000 2.00
$140,000 1.43
EBIT DOL
$80,000 1.25
$40,000 1.50
ease in sales volume, each firms DOL will cause
te that the EBIT of the com anies that have the
hem for the same rice: $2.00 er unit. But
0 means an increase in rofits of $40,000 for
nt where unit sales are 120,000:
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$120,000 1.33
$56,000 1.71
$140,000 1.43
$60,000 2.00
EBIT
$531
$7,794
$12,685
$11,907
$8,555
$5,358
$5,861
$7,482
$12,958
$10,744
$1,155
$(2,045)
$82,986
$4,963
and lannin rofitabilit . For exam le, ou would
s. Each mornin and afternoon, trucks arrive at
the trucks coffee brewin e ui ment, are
ffice, closer to the sales area, would cost an
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EBIT
$(23.30)
$8,374
$14,029
$13,130
$9,254
$5,558
$6,139
$8,013
$14,346$11,785
$698
$(3,002)
$88,302
$5,738
Unit Total Net Increase
variable variable operating in net
costs costs income income
must lower our unit sales rice from $2.00 to
uld be as shown below.
as relativel little in the wa of resources to
otDo Man case stud , but also their net income
ome does not necessaril increase the level of
ual o erations and rofit tar ets b means of the
e of the otential savin s in asoline and vehicle
vember throu h Januar , when it is much more
or of variable costs to that of fixed costs, HotDo
earnin s, which is shown in both exam lesboth exam les, the DOL would increase from 2.45
ch as ma or re airs to its trucks or the trucks
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$1.50 $180,000 #NAME?
$1.50 $300,000 #NAME? $(20,000)
$1.20 $144,000 #NAME?
$1.20 $240,000 #NAME? $4,000
$1.00 $120,000 #NAME?
$1.00 $200,000 #NAME? $20,000
both short-term and lon -term b means of
cial levera e, and therefore new debt can have
of new com uter workstations. If the return on the
tock? , to mana ers will this decision et me a
ions of how financial levera e im acts the level of
Ratio is the Levera e Factor. The exam le below
assets b means of debt: that is, a com an that
sk, that a firm incurs b usin financial levera e:
es in the desi n of business software. Your
ts to use durin trainin , ou have assumed an
financial levera e. One wa to focus on financial
enhances our abilit to make ood decisions
ers of Firm C believe that this works to their
it is essential to a clear icture of the risk a
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Reserved.
vered b a firms earnin s. It is calculated b
as relativel low debt, uses a lower ro ortion of
ause it must cover interest a ments before
e are im ortant in redients in determinin the
ssets. If a firm has a hi h debt ratio, then a hi h
assets. This im lies that it re uires a smaller
cial times. For exam le, if a com an with a hi h
were to ex erience a recessionar eriod, the
uit to its assets. The hi her the E uit Ratio, the
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