I’ve spent at least 45 minutes on this question and still can’t figure out how to solve it: Edelman Corp. has an operating profit margin of 8% on sales volume of $2 million. When Edelman’s sales volume increased to $3 million, its operating profit margin rose to 10%. Edelman’s operating leverage is: The answer is 1.75. How did the answer people figure that one out?
% delta Sales 3-2 / 2 = .5 Ebit Before = .08 * 2 = .16 Ebit After = .1 * 3 = .30 Delta EBIT = .875 DOL = %DELTA EBIT / % DELTA Sales = .875 / .5 = 1.75
yup thats what i got… EBIT = 0.08*2,000,000 = 160,000 SALES = 2,000,000 now, SALES = 3,000,000 EBIT = 0.1*3,000,000 = 300,000 then, DOL = %change EBIT / %change SALES