Page 40 - FINAL CFA I SLIDES JUNE 2019 DAY 10

Session Unit 11:
37. Measures of Leverage

Example: DOL., 68: Consider the following table of costs for 2 firmss. Assuming that 100,000 units
are produced for each firm, calculate the DOL for Atom Company and Beta Company.

tanties

FC% = 12% ($40/$40+$300)) FC% = 38% ($120/$120+$200))

Meaning?
Who has better cost structure and why?

10% increase in sales for both results in EBIT rise of 25% for Beta and only 16.7% for Atom. Beta Co is
better-off right? If sales decline, Atom Co will be better off!

Note: DOL depends on the level of sales; if Atom sells 300,000 units, the DOL is decreased

If you plug in zero DOL is highest at low levels of
for fixed costs? sales and declines at higher levels
of sales.
DOL = 1