Gillette Company [G], a company that manufactures and sells consumer products, uses only debt and common stock to finance the firm. The firm’s EBIT and interest expense have fluctuated during the past five years. Answer the following questions about Gillette:
a. What is the degree of financial leverage (DFL) for Gillette in each of the past five years?
b. How has the change in EBIT from year to year affected Gillette’s earnings per share in each of the past five years?
c. Choose two of Gillette’s industry peers that do not have preferred stock in their capital structures and compare these companies with Gillette in regard to their degree of financial leverage? Explain what your comparison means.