Question

Calculate a company's total leverage given the following information:

Change in sales = 3%
Change in earnings = 9%

Answer 1

Explanation:

Given that,

Change in sales = 3%

Change in earnings = 9%

We need to find a company's total leverage.

Total leverage is equal to the ratio of percentage change in earnings per share to percentage change in sales revenue.

$\text{leverage }=\dfrac{9\%}{3\%}\\=3$

Hence, company's total leverage is 3 units.