Question
A company has Sales = ₹40,00,000, Variable cost =
₹24,00,000, Fixed cost = ₹8,00,000, Interest = ₹2,00,000. Calculate Combined Leverage.Solution
EBIT = Sales – VC – FC = 40 – 24 – 8 = ₹8,00,000. Contribution = 40 – 24 = ₹16,00,000. Operating leverage = Contribution/EBIT = 16/8 = 2. Financial leverage = EBIT / (EBIT – Interest) = 8 / (8 – 2) = 8/6 = 1.33. Combined leverage = 2 × 1.33 = 2.6.
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