Indicate your results and discuss what they imply about the organizations capital structure.
What other ethical traditions contributed to the decision to eliminate tobacco sales?
August 4, 2017What seems to be the main reason for the change in stockholders’ equity from the past year to the most recent year?
August 4, 2017Indicate your results and discuss what they imply about the organizations capital structure.
choose a company, Pull its’ most recent financials and calculate the DOL, DFL, and DCL. Indicate your results and discuss what they imply about the organizations capital structure.
In addition, a note on sources. Do NOT use Wikipedia, boundless, investopedia, brighthub etc. as sources. Go to primary or scholarly sources.
You can write like example, and respond it .
example
The company that I chose is UnderArmour. I obtained all my information from their investor website athttp://investor.underarmour.com/income.cfm All values are from the 2014 to 2015 fiscal years.
Degree of Operating Leverage (DOL)= % Change in Total Income Before Interest Expenses (EBIT)/ % Change in Sales
% Change in Total Income Before Interest Expenses= (401.31 M-347.55 M)/347.55 M*100=15.47%
% Change in Sales=(3.96 B-3.08 B)/3.08 B*100=28.57%
DOL=15.47/28.57=0.5415
Degree of Financial Leverage (DFL)=% Change in Earnings Per Share (EPS)/% Change in EBIT
% Change in Earnings Per Share=($1.05-$0.95)/$0.95*100=9.5%
DFL=9.5/15.47=0.6141
Degree of Combined Leverage (DCL)=DOL*DFL=0.3325
UnderArmour’s fixed costs are rather low, since they outsource the majority of their production overseas. The DOL is 0.5415. This means that for a 1% increase in sales EBIT should increase by 0.5415%. UnderArmour’s DOL is low, because they sell a lot of products, so selling a few more doesn’t increase their profit by a very large margin.
The DFL is 0.6141. This means that for a 1% increase in EBIT, EPS should increase by 0.6141%. The rest of the increase goes to interest on debt and income taxes. So, UnderArmour has a somewhat high DFL since almost 40% of each additional $ increase in EBIT goes to interest on debt and income taxes.
The DCL is 0.3325. This means that for a 1% increase in sales, EPS should increase by 0.3325%. UnderArmour’s DCL is average. Not much of the increase in sales goes to cover fixed costs, while a rather large portion goes to interest on debt and income taxes.
Since this is my first experience with these ratios I am not quite sure what a high or low value for them is. Because of that, I think it will be very interesting to see how UnderArmour’s ratios compare to those of other companies.
