Calculating operating leverage. Marvellous Company has a degree of cash flow operating leverage equal to 1.25. If the company's EBITDA was $1,000 last year while its depreciation and amortisation expense was $50 in the same year, then what was the company's degree of accounting operating leverage?
A) 1.26
B) 1.30
C) 1.32
D) 1.35

Question

Quizplus · Accepted Answer

The degree of accounting operating leverage is calculated as (EBIT + Depreciation and amortization expense) / EBIT. In this case, EBIT = EBITDA - Depreciation and amortization expense = $1,000 - $50 = $950. Therefore, the degree of accounting operating leverage = ($950 + $50) / $950 = 1.32.

Calculating Operating Leverage