9 Questions
What is the formula for calculating the Degree of Financial Leverage (DFL)?
DFL = (% Change in Net Income) / (% Change in EBIT)
What is the net income of the business in the given example?
$32,500
What is the percent change in net income for the business in the given example?
8.7%
What is the formula for calculating Earnings Before Interest and Taxes (EBIT)?
EBIT = Net Income + Interest + Taxes
What is the EBIT for the business in the given example?
$56,000
What is the percent change in EBIT for the business in the given example?
2.95%
What does a higher value of the Degree of Financial Leverage (DFL) indicate?
The business has a higher level of fixed costs
What is the significance of the Degree of Financial Leverage (DFL) for a business?
It helps in evaluating the risk associated with the business's capital structure
What is the purpose of calculating the Degree of Financial Leverage (DFL)?
To measure the sensitivity of a company's net income to changes in its EBIT
Learn about the key components of risk management, including risk planning, identification, analysis, response planning, and monitoring/control. Understand the 4 steps involved in the risk management process.
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