Originally published: 10/04/2018 10:06
Publication number: ELQ-62780-1
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Leverage Analysis Formula

Detailed analysis and evaluation of the Leverage Analysis Formula.

In this video, you will learn how to calculate the Leverage Analysis Formula and what it means for your business.

First of all, the video demonstrates why you should split your expenses into three distinct categories:

- Variable Cost
- Operating Fixed Cost
- Non-operating Fixed Cost

He then goes on to analyse the relationship between
Contribution and Earnings Before Interest and Taxes and gives a formula to show how these two figures can be used to calculate your operating leverage.

Next, he analyzes the relationship between Earnings Before Interest and Taxes and profit. He shows that these two figures can be used in combination with one another to calculate financial leverage.

He then establishes a relationship between Contribution and profit and how this can be used to calculate the combined leverage.

Next, the video shows what can be inferred from each of these equations and calculations. He uses different figures to give examples for each of the calculations, making them easier to understand and put into practice.

This is a great tool for understanding different formulas regarding leverage and putting them into practice.

Length: 11 minutes 28 seconds

This Best Practice includes
1 Video File

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