DOL AND DFL COMPARISION
Operating leverage is concerned with the relationship between the firm’s sales revenue and its earnings before interest and taxes (EBIT)
Financial Leverage is concerned with the relationship between the firm’s (EBIT) and its common stock earnings per share (EPS)
|Company /year |2010 |2009 |2008 |2007 | |ntpc |1.12 |-0.44 |0.87 |1.3 | | | | | | | | | | | | | | | | | | | | | | | | | |Tata power |-8.635 |1.767 |1.850 |-3.478 | |ongc |-0.70 |-0.85 |1.65 |.5 | |Suzlon energy |2.082 |-11.27 |1.49 |.65 |
The degree of operating leverage (DOL) measures the sensitivity of changes in EBIT to changes in Sales.
From the above table it is seen that the proportion of change in ebit is almost equal to the change in sales for NTPC and ONGC while it is not the case with the remaining two companies. The high dol shows that these companies have high fixed costs.
|Company/year |2010 |2009 |2008 |2007 | |ntpc |0.55 |-1.85 |0.66 |0.63 | |Tata power...
Please join StudyMode to read the full document