Synthgration has a degree of pretax cash flow operating leverage equal to 1.266. If the firm's EBITDA was $1,500 last year while its depreciation and amortization expense was $100 in the same year, then what was the firm's degree of accounting operating leverage?
A) 1.29
B) 1.33
C) 1.36
D) 1.39

Question

Quizplus · Accepted Answer

Degree of accounting operating leverage (AOL) = percentage change in Earnings before interest and taxes (EBIT) / percentage change in Sales

AOL = (EBIT / Sales) / ((EBIT - Depreciation and Amortization) / (Sales - Depreciation and Amortization))

Given,

EBITDA = EBIT + Depreciation and Amortization
1,500 = EBIT + 100
EBIT = 1,400

Thus,

AOL = (1,400/1,500) / ((1,400-100)/(1,500-100))
    = 1.36

Therefore, the correct answer is C) 1.36.

Synthgration Has a Degree of Pretax Cash Flow Operating Leverage