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4. Financial leverage The following is a list of selected information for ManCity Co. for the fiscal year. Unit Change 30 Sales in units (millions)
4. Financial leverage The following is a list of selected information for ManCity Co. for the fiscal year. Unit Change 30 Sales in units (millions) Earnings before interest and taxes (EBIT) Less: Interest Forecasted Operations 150 2,625.00 (200.00) Sales with 20.00% Increase 180 3,465.00 (200.00) 840.00 (0.00) Earnings before taxes Less: Taxes (40%) Net income $2,425.00 970.00 1,455.00 $3,265.00 1,306.00 1,959.00 $840.00 (0.00) 504.00 Earnings per share (20 million shares) $72.75 $97.95 $25.20 You are an employee for ManCity Co., and your boss needs help assessing the level of risk associated with the firm's current financial position. Begin by calculating the degree of financial leverage for the change between forecasted operations and the operational increase of 20.00%. 1.06% 0.45 0.60x 1.08x Your boss says, "Looking good so far. However, I would like to know how we stack up against our strongest competitor, ManUnited Co." Compare the degree of operating leverage of ManUnited Co. with that of ManCity Co. and then answer the following question. All else being equal, is ManCity Co. more risky than, less risky than, or as equally risky as ManUnited Co., considering that the degree of financial leverage for Man United Co. is 1.08? Equally risky Not enough information given More risky Less risky
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