Question

calculate a companys total leverage given the following information:

• change in sales = 5.5%
• change in earnings = 7%

options:

• cannot calculate without roe data
• cannot calculate without ebit data
• 1.27
• 0.79

Explanation:

Step1: Recall Total Leverage Formula

Total leverage (TL) is calculated as the percentage change in earnings divided by the percentage change in sales. The formula is \( TL=\frac{\%\text{ change in earnings}}{\%\text{ change in sales}} \).

Step2: Substitute the Given Values

We know the percentage change in sales is \( 5.5\% = 0.055 \) and the percentage change in earnings is \( 7\% = 0.07 \). Substituting these into the formula: \( TL=\frac{0.07}{0.055}\approx1.27 \).

Answer:

1.27