Degree of combined leverage (DCL) uses the entire income statement and shows the impact of a change in sales or volume on bottom-line earnings per share. Degree of operating leverage and degree of financial leverage are, in effect, being combined.

******** Question is: Looking at the graph should the company maximize a degree of combined leverage?

Figure 5-5: if higher earnings are bet ter, then doesnt this graph suggest that companies should maximize the degree of combined leverage (DCL)?

figure 5-6

figure 5-5

the question is: looking at graph 5-5 if the earnings are better, then does this graph suggest that companies should maximize the degree of combing opearating and financial leverage?

Figure 5-5 Corraining operating and financial leverage Eamings generated s EPS $1.50 Financial leverage Operating income - EBIT $36,000 $36.000 Operating leverage Sales $160.000 Leverage impact 4:39 9/16/2 Sus cricidiarre" 110 m f12 pause break prt sc sysra delete insert home PS 9 o backspace num lk Noong Table 5-6 Income statement Operating leverago Sales (total revenue) (80,000 units $2) Fixed costs Variable costs ($0.00 per unit) Operating income Earnings before interest and taxes -Interest Earnings before taxes - Taxes Earnings after taxes Shares Earnings per share $160,000 60,000 64,000 $ 38,000 $ 36,000 12,000 $ 24,000 12,000 $ 12,000 8,000 $1.50 Financial leverage You will observe, first, that operating leverage influences the top half of the income statement-determining operating income. The last item under operating leverage, operating income, then becomes the initial item for determining financial leverage. Figure 5-5 Combining operating and financial leverage Earnings generated $ EPS = $1.50 E - . in tatement determining operating income. The last item under operating leverage perating income, then becomes the initial item for determining financial leverage Figure 5.5 Combining operating and financial cverago Earnings generated $ D EPS - $1.50 Financial leverage Operating income = EBIT $36.000 $36.000 Operating leverage Sales = $160,000 Leverage impact