Final answer:
To compute the degrees of operating, financial, and combined leverage, specific formulas and data from the income statement are required. The provided question lacks the necessary details, preventing the calculation of exact figures. The process involves using formulas that relate changes in sales, operating income, and earnings per share to gauge a company's financial sensitivity.
Step-by-step explanation:
To analyze the Sterling Tire Company's income statement and compute the degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of combined leverage (DCL), we need to use specific financial formulas. The DOL measures how a company's operating income changes with its sales and is calculated by dividing the percent change in operating income by the percent change in sales. To find the DFL, which measures the sensitivity of a company's earnings per share to its operating income, we use the percent change in earnings per share divided by the percent change in operating income. Lastly, the DCL is the product of DOL and DFL, giving us insight into the sensitivity of the company's earnings per share to changes in sales.
To compute these measures, we would typically require specific values from the income statement, such as sales, variable costs, fixed costs, earnings before interest and tax (EBIT), interest expenses, and net income. Since the income statement details are not provided, we can't calculate exact figures but can explain the process. If the student provides the necessary figures, you can enter the data into a calculator or computer and apply the respective formulas, ensuring to round the final answers to two decimal places, except for intermediate calculations when determining DCL.