Consider these financial statements for SmallCo: SmallCo Balance Sheet (SK) Cash AR Inventory net PPE Total...

 

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Consider these financial statements for SmallCo: SmallCo Balance Sheet (SK) Cash AR Inventory net PPE Total Assets AP Other Current Liabilities Debt (all long term) Total Liabilities Equity Year Ending 12/31 20X1 55.00 15.00 5.00 60.00 135.00 20X0 50.00 10.00 5.00 50.00 115.00 15.00 15.00 20.00 50.00 65.00 20.00 15.00 25.00 60.00 75.00 SmallCo Income Statement ($K) Revenue COGS SGA EBIT Interest EBT Tax @16.7% Net Income Year Ending 12/31 20X1 110.00 75.00 23.00 12.00 3.00 9.00 1.50 7.50 20X0 100.00 70.00 20.00 10.00 2.00 8.00 1.33 6.67 Firms A and B are comparable competitors (IE: they are "comps" of each other). A's SDI to COGS ratio is twice as big as B's ratio. Which company has the lower operating leverage? Consider these financial statements for SmallCo: SmallCo Balance Sheet (SK) Cash AR Inventory net PPE Total Assets AP Other Current Liabilities Debt (all long term) Total Liabilities Equity Year Ending 12/31 20X1 55.00 15.00 5.00 60.00 135.00 20X0 50.00 10.00 5.00 50.00 115.00 15.00 15.00 20.00 50.00 65.00 20.00 15.00 25.00 60.00 75.00 SmallCo Income Statement ($K) Revenue COGS SGA EBIT Interest EBT Tax @16.7% Net Income Year Ending 12/31 20X1 110.00 75.00 23.00 12.00 3.00 9.00 1.50 7.50 20X0 100.00 70.00 20.00 10.00 2.00 8.00 1.33 6.67 Firms A and B are comparable competitors (IE: they are "comps" of each other). A's SDI to COGS ratio is twice as big as B's ratio. Which company has the lower operating leverage?

Answer rating: 100% (QA)

To determine which company has the lower operating leverage we need to compare the operating leverag... View the full answer