Definition of operating leverage. Operational lever: clarification of the concept

The effect of operating leverage is based on the division of costs into fixed and variable, as well as on the comparison of revenue with these costs. The action of production leverage is manifested in the fact that any change in revenue leads to a change in profit, and profit always changes more than revenue.

The higher the share of fixed costs, the higher the production leverage and entrepreneurial risk. To reduce the level of operating leverage, it is necessary to seek to convert fixed costs into variables. For example, workers employed in production can be transferred to piecework wages. Also, to reduce depreciation costs, production equipment can be leased.

Methodology for calculating the operating leverage

The effect of operating leverage can be determined by the formula:

Consider the effect of production leverage on practical example. Let's assume that in the current period the revenue amounted to 15 million rubles. , variable costs amounted to 12.3 million rubles, and fixed costs - 1.58 million rubles. Next year, the company wants to increase revenue by 9.1%. Determine how much profit will increase using the force of operating leverage.

Using the formula, calculate the gross margin and profit:

Gross margin \u003d Revenue - Variable costs \u003d 15 - 12.3 \u003d 2.7 million rubles.

Profit \u003d Gross Margin - Fixed Costs \u003d 2.7 - 1.58 \u003d 1.12 million rubles.

Then the effect of operating leverage will be:

Operating lever= Gross Margin / Profit = 2.7 / 1.12 = 2.41

The operating leverage effect measures the percentage increase or decrease in earnings for a one percent change in revenue. Therefore, if revenue increases by 9.1%, then profit will increase by 9.1% * 2.41 = 21.9%.

Let's check the result and calculate how much the profit will change traditional way(without using the operating lever).

When revenue increases, only variable costs change, while fixed costs remain unchanged. Let's present the data in an analytical table.

Thus, profit will increase by:

1365,7 * 100%/1120 – 1 = 21,9%

The effect of operating leverage (or production leverage)called a phenomenon that is expressed in the fact that a change in sales volume (sales proceeds) causes a more intensive change in profit in one direction or another. As you know, all costs of the enterprise are divided into fixed and variable. In the short run, unlike fixed costs, variable costs can change under the influence of adjustments in the volume of production (sales). In the long run, all costs are variable. When sales volume changes, variable costs change proportionally, while fixed costs remain the same, thus, a huge positive potential for the company's activities lies in saving on fixed costs, including the costs associated with enterprise management.

A sharp change in the amount of fixed costs occurs due to a radical restructuring organizational structure enterprises during periods of mass replacement of fixed assets and qualitative “technological leaps”. Thus, any change in sales revenue generates an even stronger change in carrying profit.

The strength of the impact of the production lever depends on the proportion of fixed costs in the total cost of the enterprise.

The leverage effect is one of the key indicators financial risk, because it shows how much the balance sheet profit will change, as well as the economic profitability of assets with a change in sales volume or proceeds from sales of products by 1%.

In practical calculations, to determine the strength of the impact of the operating lever on a particular enterprise, the result from the sale of products after reimbursement will be used. variable costs, which is often called marginal income:

Marginal income = Sales volume - Variable costs

Contribution margin = Fixed costs + EBIT

EBIT– operating income (from sales before deducting interest on loans and income taxes).

Marginal Income Ratio = Marginal Income / Sales Volume

It is desirable that marginal income not only covers fixed costs, but also serves as a source of operating profit (EBIT) /

After calculating the marginal income, you can determine the force of the impact of the production lever (SLR):

ROI = Marginal Income / EBIT

The ratio expresses how many times marginal income exceeds operating profit.

Operating leverage effectboils down to the fact that any change in sales revenue (due to a change in volume) leads to an even stronger change in profit. The effect of this effect is associated with the disproportionate influence of fixed and variable costs on the financial result. economic activity enterprises when the volume of production changes.

Operating lever forceshows the degree of entrepreneurial risk, i.e. the risk of loss of profit associated with fluctuations in the volume of sales. The greater the effect of operating leverage (the greater the proportion of fixed costs), the greater the entrepreneurial risk.

The strength of the operating leverage is always calculated for a certain volume of sales. As sales revenue changes, so does its impact. The operating lever allows you to assess the degree of influence of changes in sales volumes on the size of the organization's future profits. Operating leverage calculations show how much profit will change if sales volume changes by 1%.

Thus, modern management costs involves quite diverse approaches to accounting and analysis of costs, profits, entrepreneurial risk. You have to learn these interesting tools to ensure the survival and development of their business.

44. Calculation of the break-even point. Profitability threshold
and financial strength

Breakeven point corresponds to the volume of sales at which the firm covers all fixed and variable costs without making a profit. Any change in revenue at this point results in a profit or loss. In practice, 2 methods are used to calculate this point: the graphical method and the method of equations.

With the graphic method finding the break-even point comes down to building a comprehensive schedule of "costs - output - profit".

The break-even point on the chart is the point of intersection of the straight lines built by the value of total costs and gross revenue. At the break-even point, the revenue received by the enterprise is equal to its total costs, while the profit is zero. The amount of profit or loss is shaded. If the company sells products less than the threshold sales volume, then it suffers losses; if more, it makes a profit.

The revenue corresponding to the break-even point is called threshold revenue . The volume of production (sales) at the break-even point is called production threshold (sales), if the company sells products less than the threshold sales volume, then it suffers losses, if more, it makes a profit.

Equation method based on the use of the formula for calculating the break-even point

Qpcs \u003d Fixed costs / (Price per unit of production - Variable costs per unit of production)

y=a+bx

a- fixed costs b- variable costs per unit of output, x- the volume of production or sales at a critical point.

Profitability threshold- this is such sales revenue at which the company has no losses, but has not yet made a profit. In such a situation, sales revenue after recovering variable costs is sufficient to recover fixed costs.

Profitability Threshold = Fixed Costs / Marginal Income Ratio

Coeff. contribution margin = (sales volume - variable costs) / sales volume

It is desirable that marginal income not only covers fixed costs, but also serves as a source of operating profit.

The company begins to make a profit when the actual revenue exceeds the threshold. The greater this excess, the greater the margin of financial strength of the enterprise and the greater the amount of profit. Margin of financial strength – excess of actual sales proceeds over the profitability threshold:

Financial safety margin = ((Planned sales revenue - Threshold sales revenue) / Planned sales revenue) ´ 100%

The strength of the impact of operating leverage shows how many times the profit will change if the sales proceeds change by one percent.

45. Financial risks: essence, methods of determination and
management

In the most general view Risks are understood as the likelihood of losses or shortfalls in income compared to the predicted option.

Types of financial risks:

· Downside risk financial stability (risk of imbalance in financial development) of the enterprise. It is characterized by an excessive share of borrowed funds and an imbalance of positive and negative cash flows by v.

· Insolvency risk(or the risk of unbalanced liquidity) of the enterprise. Characterized by a decrease in the level of liquidity current assets, generating imbalance of positive and negative cash flows of the enterprise in time.

· Investment risk- the possibility of financial losses in the implementation of the investment activities of the enterprise.

· inflation risk– the possibility of depreciation of the real cost of capital of the expected income from financial transactions in the context of inflation.

· Interest risk- an unexpected change in the interest rate in the financial market.

· Currency risk consists in the shortfall in the provided income as a result of a change in the exchange rate of the foreign currency used in the foreign economic operations of the enterprise.

· Deposit risk reflects the possibility of non-return of deposits.

· Credit risk- the risk of non-payment or late payment for finished products released by the enterprise on credit.

· tax risk the likelihood of introducing new taxes changing the terms and conditions for making certain tax payments, canceling existing tax incentives, the possibility of increasing the level of rates

· Structural risk characterized by inefficient financing of the current costs of the enterprise, causing high specific gravity fixed costs in their total amount.

· Criminogenic risk manifests itself in the form of declaring fictitious bankruptcy by its partners (forgery of documents that ensure the misappropriation of monetary and other assets by third parties).

· Other types of risks– risks of natural disasters, the risk of untimely implementation of settlement and cash operations.

The main characteristics of the risk category:

1) Economic nature - financial risk manifests itself in the sphere of economic activity of the enterprise, directly related to the formation of income and possible losses in the implementation of financial activities.

2) Objectivity of manifestation - financial risk accompanies all types of financial transactions and all areas of its financial activity.

3) Probability of implementation - the degree of probability of occurrence of a risk event is determined by the action of objective and subjective factors.

4) Uncertainty of consequences - financial risk may be accompanied by financial losses or the formation of additional income.

5) Expected unfavorable consequences - a number of extremely negative consequences financial risks determine the loss of not only income, but also the capital of the enterprise, which leads it to bankruptcy.

6) Level variability. The level of financial risk varies significantly over time, i.e. depends on the duration of the financial transaction.

7) The subjectivity of the assessment is determined by the different levels of completeness and reliability of information, the qualifications of financial managers, their experience in the field of risk management.

Management of risks is a special field of activity (risk management), which is associated with the identification of forecasting analysis, measurement and prevention of risks, with their minimization, retention within certain limits and compensation.

Risk management methods:

1) risk avoidance or avoidance;

2) risk transfer;

3) risk localization (limitation);

4) risk distribution;

5) risk compensation.

1. Evasion or avoidance of risk. Development of strategic and tactical decisions that exclude the occurrence of risky situations.

The decision to avoid risk is usually taken at a preliminary stage, because refusal to continue the operation often entails not only financial, but also other losses, and sometimes it is difficult due to contractual obligations. Risk Avoidance Measures:

Refusal to carry out financial transactions, the level of risk for which is high. Its use is limited, because. most financial transactions are related to the main production and commercial activities;

refusal to use large amounts of borrowed capital, which avoids one of the significant risks - the loss of financial stability, but at the same time it reduces the effect financial leverage;

· rejection of excessive use of current assets in a low-liquid form;

· Refusal to use temporarily free cash assets as short-term financial investments, which avoids deposit and interest risks, but gives rise to inflationary risk and the risk of lost profits;

Rejection of the services of unreliable partners;

· rejection of innovative and other projects where there is no confidence in their feasibility and effectiveness.

The implementation of these measures should be carried out with following conditions:

if the rejection of one type of risk does not entail the emergence of a higher one;

if the degree of risk is incomparable with the level of profitability of the proposed financial transaction;

if financial losses exceed the possibility of their reimbursement at the expense of own funds

if the income from the risky operation is insignificant;

if risky operations are not typical for the company.

2. Transfer of risk- the transfer of risk to other persons through insurance or transfer to partners in financial operations through the conclusion of contracts. The most dangerous financial risks are subject to insurance. However, insurance is not applicable:

when establishing new types of products or technologies;

· when Insurance companies do not have statistical data for calculations.

Financial risk insurance- insurance that provides for the obligations of the insurer for insurance payments in the amount of full or partial compensation for losses as a result of: stoppage of production, bankruptcy, unforeseen expenses, failure to fulfill contractual obligations, etc.

Transfer of risk through conclusion of a surety agreement or providing a guarantee, i.e. The guarantor undertakes to be responsible to the creditor for the performance of the obligation in whole or in part. Bank as guarantor.

Risk transfer suppliers of raw materials and materials(subject of transfer - risks associated with damage or loss of property).

Risk transfer participants of the investment project. It is important to make a clear delineation of the areas of action and responsibilities of the participants.

Transfer of risk through factoring conclusions. The subject of the transfer is the company's credit risk (same as receivables insurance).

Transfer of risk through exchange transactions(For example, hedging).

3. Risk localization. It involves delimiting the system of rights, powers and responsibilities so that the consequences of risky situations do not affect the implementation of management decisions. Limiting is implemented by establishing internal financial standards at the enterprise. Localization of risks includes measures to create venture (risky) enterprises, the allocation of specialized units and the use of standards.

The system of financial standards:

· size limit borrowed funds by type of activity;

· minimum size assets in a highly liquid form;

· maximum size commodity or consumer credit to one buyer;

· the maximum size of the deposit in one bank;

maximum investment size Money in securities of one issuer;

The maximum period for diverting funds into receivables.

4. Risk distribution between market entities. Main methods of risk distribution:

diversification of activities production area: increasing the number of technologies, expanding the range, targeting various groups of consumers and suppliers, regions; in the financial sector: income from various financial transactions, the formation of a loan portfolio, long-term financial investments, work in several segments of the financial market);

diversification of investments - preference for several projects of small capital intensity

· diversification of the portfolio of securities;

· diversification of the deposit portfolio;

· Diversification of credit and foreign exchange portfolio.

5. Risk compensation. Main methods:

· strategic planning;

· forecasting the economic situation, developing development scenarios and assessing the future state of the business environment (behavior of partners, competitors, changes in the market);

Active targeted marketing - the formation of demand for products;

· monitoring the socio-economic and regulatory environment - tracking current information and socio-economic processes;

Creation of a system of reserves within the enterprise.

Operating leverage (or, as it is also called, operating leverage) is one of the main economic indicators. It not only makes it possible to assess the current situation, but is also actively used in forecasting. Perhaps the most important operational leverage is in the context of determining economic risks in a particular period.

Operating Lever - Definition

There are many various criteria, by which it is possible to determine the economic condition of the enterprise. Thus, the operating leverage is an indicator that demonstrates the dependence of the dynamics of changes in the rate of profit on revenue. An important role here is played by such a concept as the break-even point, which denotes the minimum amount of revenue that covers all production costs. It is also worth considering the factors that affect the dynamics of the second indicator. It can be both price fluctuations and changes in the volume of demand.

The concept of operating leverage is inextricably linked with the share of fixed costs in total production costs. This is what determines the sensitivity of profit to revenue. The lower the fixed costs, the more active the dynamics of the first value in relation to the second.

Operating Lever Features

An indicator such as operating leverage is characterized by a number of distinctive features. Among them, it is worth highlighting the following:

• It will be appropriate to determine the effect of operating leverage only when the organization has stepped over the break-even point in its activities. This can be explained by the fact that, regardless of the amount of income received, the company is obliged to repay the costs that are fixed.
• As the volume of product sales increases, and, accordingly, revenue, the significance of the operating lever gradually decreases. Since the company has already overcome the zero (break-even) level, profit will also continuously increase with income growth. And vice versa.
• The relationship between profit and operating leverage is inverse. Thus, we can say that this indicator somehow equalizes the values ​​of profitability and risk.
• The effect of operating leverage is only fair for the short term. This can be explained by the fact that fixed costs gradually change due to fluctuations in tariffs and other factors.

Techniques for reducing fixed costs

In order to reduce the share of fixed costs in their total amount, the following techniques can be used:

• reducing the cost of maintaining the administrative apparatus;
• sale or lease of equipment that is idle in order to reduce depreciation and maintenance costs;
• not to burden the budget large quantity expenses, you can take production machines on lease;
• saving resources and reducing utility bills.

How to save on variable costs

Since variable costs also affect the final operating leverage, it is worth taking some measures in production to reduce them:

• reducing the number of personnel by automating all processes or increasing labor productivity in other ways;
• rationalization of warehousing by reducing stocks, which will reduce the cost of their storage and maintenance;
• revision of the logistics system in favor of more profitable delivery methods.

Operating leverage calculation

It makes it possible to evaluate the change in profit as a percentage with fluctuations in costs and revenues such an indicator as operating leverage. Its formula is the ratio of marginal profit to the profit that was received before deducting the corresponding interest payments. We can say that this is a characteristic of the change in profit for each percentage point of increase in the level of sales.

There is another way in which operating leverage can be calculated. The formula will be valid for those enterprises that produce a wide range of product names. So, this indicator is calculated as the ratio between:

• the difference between revenue and variable costs;
• the difference between revenue, variable costs and semi-fixed costs.

If the head of the enterprise fully understands the mechanism of action of this indicator, then he has the opportunity to manipulate costs in order to increase the value of the profit indicator.

Operating lever properties

This indicator has the following properties:

• the impact and size of the operating leverage are directly proportional to fixed costs and inversely proportional to variables;
• most high rate operating leverage is when the volume of sales of products is close to the break-even point (this indicates high level risk);
• despite the fact that the low value of operating leverage is characterized by low risk, it is worth noting that in this case one should not count on significant profit either.

Lever force

The strength of operating leverage depends on the proportion of fixed costs in total costs enterprises. This is one of the most important indicators according to which the level of risk can be determined. entrepreneurial activity. It reflects fluctuations in earnings depending on sales volume and income. To determine this indicator, you must first calculate the marginal income.

The strength of the operating leverage is determined based on the specific quantity of products produced. So, you can determine the risk of losing profits due to fluctuations in sales volumes. We can say that the strength of the operating leverage and the probability of incurring losses are directly proportional.

The calculation of the operating leverage indicator is an objective necessity for carrying out qualitative analysis enterprise work. It will allow timely identification of all risks and shortcomings in the marketing organization in order to minimize the likelihood of financial losses and bankruptcy.

Operating lever options

There are several options according to which this indicator can be calculated. So the operating leverage is:

• ratio of constants and variable costs, which significantly affects the profitability of the enterprise;
• the ratio of the rate of change in retained earnings to the volume of sales of marketable products;
• the ratio of profit to a fixed category of expenses.

It should be noted that the increase in the assets of the enterprise due to the receipt of any additional funds always provokes an increase in the indicator of operating leverage.

How does the operating lever work?

The impact of operating leverage reflects entrepreneurial risk. In the case when this indicator is high, for each percentage decrease in the amount of revenue, there is a significant decrease in profit. it is also important to take into account the influence of the size of fixed costs. So, in the event that the operating leverage is high enough for large enterprises, they should be careful. With the slightest fluctuation in the economy, the solvency of customers will drop sharply, while the level of fixed costs will remain at the same level or even increase.

The impact of operating leverage must be assessed at all stages life cycle product. This will allow timely response to changes in the economy. Thus, management will be able to manipulate fixed and variable costs in order to bring operating leverage to the optimum level.

Calculation of the effect of operating leverage

The basis of this indicator is the ratio of fixed and variable costs in relation to the size of the financial result. It should be noted that profit and revenue change differently due to the presence of mandatory payments for public services, depreciation and so on. It can be said that financial results will depend more on the level of income, the higher the fixed costs.

In relation to all of the above, operating leverage is equal to the ratio of profit growth to revenue growth. The indicator calculated in this way helps to predict the financial result, depending on fluctuations in the amount of income and fixed costs.

Economic sustainability of the enterprise

Any effective manager must be familiar with the methods of calculating the operating leverage in order to be able to assess the economic sustainability of the enterprise and influence it in time. This technique allows you to assess the situation accurately and quickly without compiling detailed reports. There is an opportunity to adjust sales volumes and the level of costs in order to maximize profits. In this context, the following factors must be taken into account:

• despite the fact that fixed costs can shift the break-even point, their change does not have any effect on marginal profit;
• variable costs do not just change the break-even value, but can also have a significant impact on profit;
• if a change in various types of costs occurs at the same time, then the zero level will shift significantly on the break-even chart;
• pricing policy has a significant impact on marginal profit.

Key Assumptions

The following key assumptions are used in calculating operating leverage, as well as in carrying out the corresponding analysis of production:

• all costs of the enterprise can be clearly divided into fixed and variable (in some cases, managers resort to an approximate classification);
• the company is engaged in the production of one type of product (if the products are produced in assortment, then it should not change throughout the entire reporting period);
• both costs and revenues should directly depend on the volume of products produced;
• no inventory left at the end of the reporting period finished products(it must be implemented in full);
• all indicators, except for the scale of production, must remain constant, or their spread in their values ​​over time must be insignificant (this applies to the price level, labor productivity, assortment component, and so on);
• operational analysis is applicable only for a short-term period (no more than a year), during which fixed costs do not change significantly.

What does the indicator reflect?

The operating lever gives an idea of ​​the following points in the activities of the enterprise:

• the level of economic efficiency for a specific sales indicator (in this regard, it is possible to plan the volume of sales that allows achieving the desired marginal profit);
• determination of sales volumes that will ensure full coverage of all production costs (meaning the achievement of a break-even level);
• formation of financial strength reserves in accordance with the economic risk indicator;
• the impact of each individual indicator of the enterprise on the final level of profit.

A full-fledged operational analysis allows a deeper study of the features of the functioning of the enterprise. In addition, it makes it possible to quickly respond to changes in the internal and external environment in order to reduce the risk of economic losses.

Main conclusions

The role of financial leverage in performance analysis cannot be underestimated manufacturing enterprise. This indicator helps to establish a clear relationship between profit and income, as well as the main types of costs. This helps management to quickly respond to certain changes in the internal or external environment to avoid significant financial losses. Another important point in the calculation of operating leverage is its relationship with the level of economic risk. It will be the higher, the more significant the leverage. Typically, the maximum value is observed in cases where the sale of products is approximately equal to the break-even level.

However, it is not enough to simply assess the dynamics of the income received by the company, since current activities are associated with serious operational risks, in particular, the risk of insufficient revenue to cover liabilities. Accordingly, the task of assessing the degree of operational risk arises. It should be remembered that any change in sales revenue generates even more significant changes in profit. This effect is commonly referred to as the Degree Operating Leverage (DOL) effect.

Obviously, an increase in sales revenue, for example, by 15% will not automatically lead to an increase in profit by the same 15%. This fact is due to the fact that the costs "behave" in different ways, i.e. the ratio between the individual components of the total cost changes, which affects the financial results of the company.

In this case, we are talking about dividing costs into fixed (Fixed Cost, FC) and variable (Variable Cost, VC) depending on their behavior in relation to the volume of production and sales.

• Fixed costs - costs, the total amount of which does not change with a change in the volume of production ( rent insurance, equipment depreciation).
• Variable costs - costs, the total amount of which varies in proportion to the volume of production and sales (costs for raw materials, transportation and packaging, etc.).

It is this classification of costs, widely used in management accounting, that allows us to solve the problem of maximizing profits by reducing the share of certain costs. The dynamics of fixed costs can lead to the fact that profit will change more significantly than revenue. The above classification is to some extent conditional: some costs are of a mixed nature, fixed costs may change depending on the conditions, otherwise the costs per unit of production behave ( unit costs). detailed information this is presented in the special literature on management accounting. In any case, subdividing the costs into FC and VC, the concept of "relevance area" should be used. This is such an area of ​​change in the volume of production, within which the behavior of costs remains unchanged.

Thus, the effect of operating leverage characterizes the relationship between such indicators as revenue ( RS), cost structure (FC/VC) and profit before tax and interest payments (EBIT).

In fact, DOL is the coefficient of elasticity, showing how many percent will change EBIT when it changes RS by 1%.

With the help of the operating lever, you can determine:

• optimal proportions for a given company between FC and VC;
• the degree of entrepreneurial risk, i.e. the rate of decline in profits with each percent reduction in sales revenue.

Really, DOL acts as a kind of "lever" that allows you to increase the financial result in accordance with the costs incurred (the reverse is also true - with an unfavorable cost structure, losses may increase). The greater the difference between additional fixed costs and the revenues they generate, the greater the leverage effect.

Example 7.1

Suppose there is information about the company "Z" for two conditional reporting periods - 2XX8 and 2XX9.

Operating profit (P r) by the end of 2XX8 will be:

If the company plans to increase revenue next year by 10%, leaving fixed costs unchanged, the profit in 2XX9 will be:

Profit Growth Rate:

With a 10% increase in revenue, profit increased much more significantly - by 20%. This is the manifestation of the operating leverage effect.

Assume that Company Z has increased its share of depreciable non-current assets, resulting in an increase in FC(due to the increase in accumulated depreciation) by 2%.

Let us determine how the rate of profit growth will change with such a change in the cost structure.

2XX9:

Calculations show that the increase FC leads to lower profit growth. Hence, financial management company should be focused on constant monitoring of the dynamics of fixed costs and reasonable economy As a result, the entrepreneur gets the opportunity to influence the financial result. The lack of control over the cost structure will inevitably lead to significant losses even with a slight decrease in sales volumes, since with an increase in fixed costs, operating profit ( EBIT) becomes more sensitive to factors affecting revenue.

In connection with the foregoing, the following conclusions can be drawn.

• The indicator of operating leverage depends on the company's cost structure, as well as on the achieved level of sales (Q).
• The higher the fixed costs, the higher DOL.
• The higher the margin (RS - VC), the lower DOL.
• The higher the achieved level of sales Q, the lower DOL.

To answer the question of what will be the increase in profit depending on the change in sales and revenue, they calculate an indicator called “the strength of the impact of operating leverage”.

Methods for calculating the impact force of the operating lever 1

Operating leverage is related to the level of entrepreneurial risk: the higher it is, the higher the risk. The operating lever is one of the indicators of the sensitivity of profit to changes in sales volumes (Q) or sales proceeds ( RS).

Operating lever force (Sj):

Similarly, the calculation is carried out on the volume of sales of products (works, services) in physical terms.

Dependence of the strength of the impact of the operating lever on the cost structure (S 2):

7.3. Operating leverage effect

• S depends on cost structure (FC/VC) and level Q.
• The higher FC, the higher S.
• The higher the Q achieved, the lower the S.

Assume that the operating leverage in the analyzed company is 7.0. This means that for every 1% increase in sales, this company has a 7% increase in operating profit.

In international practice, such an analysis is interpreted as an analysis of the source of remuneration necessary to compensate investors and creditors for the risks they take on.

Example 7.2

Let's determine what will be the growth rate of profit, provided that the volume of sales increases by 50%.

Company A: T p (.EB1T) = 50 7 = 350%;

Company "B": T p(EB1T) = 50 3 = 150%.

Using this technique, it is possible to carry out variant calculations for one company with different forecast data for changes in earnings before interest and taxes (operating profit).

Obviously, the influence of operating leverage can be both positive and negative. The condition for the positive impact of operating leverage is the achievement by the company of such a level of revenue that covers all fixed costs(breakeven state). Along with this, with a decrease in sales volumes, it is possible negative effect operating leverage, which manifests itself in the fact that profits will decline the faster, the higher the share of fixed costs.

There is a relationship between the strength of operating leverage (S) and the company's return on sales ( ROS):

The higher the proportion FC in revenue, the greater the decrease in the profitability of sales ( ROS) has a company.

Factors affecting S:

• fixed costs FC;
• unit variable costs VCPU;
• unit price p.

Companies using a mixed scheme of business financing (having own and borrowed funds in the capital structure) are forced to control not only operational, but also financial risks. On the tongue financial analysts it's called the conjugate effect of leverage(Degree of Combined Leverage, DCL) - an indicator of the company's overall business risk (Fig. 7.2).

The conjugate effect is the percentage change net profit when the income from sales changes by 1%. It is calculated as the product of the impact force of the financial and the impact force of the operating leverage (Fig. 7.3). Depends on the structure of expenses and the structure of business financing sources.

The larger S, the more sensitive the profit before taxation is to the change in proceeds from the sale of products (works, services). The higher F, the more sensitive net profit is to changes in profit before tax, i.e.

Rice.

with simultaneous action F and S all smaller changes in revenue lead to more significant changes in net income. This is a manifestation of the coupled effect.

When making decisions on increasing the share of fixed costs in the company's cost structure and the advisability of attracting borrowed funds, it is necessary to focus on the sales forecast. In doing so, you can use

Rice. 7.3. Calculation of the force of leverage in calculations, the value of marginal income, which is the difference between revenue and variable costs (it is also called contribution to cover fixed costs).

Derivation of the formula of the coupled effect in terms of contribution margin 1:

where Q - sales volume; CM - marginal income.

With a favorable forecast for sales growth, it is advisable to increase the share of fixed costs and borrowed capital in order to increase the level DCL and get an increase in net profit in DCL times greater than the relative increase in sales volume.

With an unfavorable forecast for changes in sales volume Q, it is advisable to increase the share of variable costs, reduce fixed costs and borrowed capital and thereby lower the level DCL.

As a result, a relative decrease N1 as Q decreases, it becomes smaller.

Example 7.3

The trading company increased its sales volume (Q) from 80 units. up to 100 units At the same time, the structure of financing, costs and prices did not change.

The selling price of a unit of production Р = 20 rubles.

fixed costs FC= 600 rub.

Variable costs for 1 unit. VC= 5 rub.

Interest payments I= 100 rub.

Income tax rate D = 20%.

Determine how the change in sales under the above conditions affected the value of the company's net profit.

Sales revenue increased by 25% (2000 -1600/1600) and the company's net income increased by 75% (25% 3).

Thus, the use of management analysis elements in the process of evaluating the dynamics of the company's performance indicators allows managers to minimize operational and financial risks by determining the cost and capital structure that is optimal for a given stage of the life cycle.

Operating leverage (production leverage) is a potential opportunity to influence the company's profit by changing the cost structure and production volume.

The effect of operating leverage is that any change in sales revenue always leads to a larger change in profit. This effect is caused by varying degrees of influence of the dynamics of variable costs and fixed costs on the financial result when the volume of output changes. By influencing the value of not only variable, but also fixed costs, you can determine by how many percentage points the profit will increase.

The level or strength of the impact of the operating leverage (Degree operating leverage, DOL) is calculated by the formula:

DOL = MP/EBIT = ((p-v)*Q)/((p-v)*Q-FC)

Where,
MP - marginal profit;
EBIT - earnings before interest;
FC - semi-fixed production costs;
Q is the volume of production in natural terms;
p - price per unit of production;
v - variable costs per unit of output.

The level of operating leverage allows you to calculate the percentage change in profit depending on the dynamics of sales by one percentage point. In this case, the change in EBIT will be DOL%.

The larger the share of the company's fixed costs in the cost structure, the higher the level of operating leverage, and therefore, the more business (production) risk is manifested.

As revenue moves away from the break-even point, the impact of operating leverage decreases, and the organization's financial strength, on the contrary, grows. This Feedback associated with a relative decrease in the fixed costs of the enterprise.

Since many enterprises produce a wide range of products, it is more convenient to calculate the level of operating leverage using the formula:

DOL = (S-VC)/(S-VC-FC) = (EBIT+FC)/EBIT

Where, S - sales proceeds; VC - variable costs.

The level of operating leverage is not a constant value and depends on a certain, basic implementation value. For example, with a breakeven volume of sales, the level of operating leverage will tend to infinity. Operating lever level has highest value at a point just above the breakeven point. In this case, even a slight change in sales leads to a significant relative change in EBIT. The change from zero profit to any profit represents an infinite percentage increase.

In practice, those companies that have a large share fixed assets and intangible assets (intangible assets) in the balance sheet structure and high management costs. Conversely, the minimum level of operating leverage is inherent in companies that have a large share of variable costs.

Thus, understanding the mechanism of operation of production leverage allows you to effectively manage the ratio of fixed and variable costs in order to increase the profitability of the company's operations.