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3 votes
The company's degree of operating leverage is closest to?

1) 75.38
2) 1.99
3) 25.88
4) 11.25

User Tanel
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1 Answer

2 votes

Final answer:

Without the specific financial data required to calculate the degree of operating leverage, we cannot definitively determine which of the provided numbers (75.38, 1.99, 25.88, 11.25) is the closest to the company's actual degree of operating leverage.

Step-by-step explanation:

Degree of Operating Leverage

The question regarding the company's degree of operating leverage involves a business concept that measures the sensitivity of a company's operating income to its sales volume. To determine the closest degree of operating leverage (DOL), we can use the formula: DOL = Percentage Change in EBIT (Earnings before interest and taxes) / Percentage Change in Sales. In this case, detailed calculations are needed from the company's financial data to accurately compute the DOL. The provided figures, such as '1.74','1.75', and others, are not directly related to computing the degree of operating leverage.

However, based on the provided financial ratios and numbers, such as '743.7/(20.3/100)' and '2,862.5/(48.3/100)', it appears that these might represent operating income or sales data at different levels. To accurately answer the question, one would need to use these figures in the above formula to calculate the DOL. Normally, an increase in sales results in a proportionally larger increase in EBIT, provided there are fixed costs in the company's cost structure, which is what DOL measures.

Operating leverage is crucial for businesses because it helps in understanding risk levels and potential profitability. It is closely tied with concepts such as profit margin and liquidity, but without the right context, we cannot provide one of the suggested numbers as the accurate DOL for the company in question. In conclusion, additional information such as the company's cost behavior and sales data would be necessary to compute the correct degree of operating leverage.

User Abolfazl Rastgou
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7.3k points