THE NATURE OF OPERATIONAL LEVERAGE AND METHOD OF ITS CALCULATION

Анотація

The logical result of the financial and economic activities of the enterprise is to make a profit as the basis of its development in the future. A large number of instruments are used to forecast profits, among which a prominent place is given to one of the important tools of financial management - operational leverage. Operating leverage is the basic concept of CVP (Cost-Volume-Profit) analysis and allows us to calculate the level of growth or decline in profits in the planning period at existing costs and changes in sales. In domestic practice, the calculation of this indicator is based on financial statements, namely the Statement of financial performance (Statement of total income) form 2. The estimated value of the degree of operating leverage shows how many percent will increase operating profit with increasing sales revenue. The use of this tool makes it possible to control fixed and variable costs, to plan profits as a whole for the enterprise and by type of product, to determine the break-even point and the margin of financial strength. To ensure the constant growth of operating profit, the management of the enterprise is to pay considerable attention to cost management and production leverage (leverage), which gives a number of advantages, namely: increasing the competitiveness of both the company and individual products; saving resources, both material and financial, by managing costs; growth of the company's income due to the development of an effective pricing and credit policy, which will increase sales; to forecast the level of profit of the enterprise; choose a sales strategy for the company's products Great importance is attached to management accounting and reporting. Since the amount of operating leverage is influenced by price, sales volume, variable and fixed costs, as well as their combination, timely data collection and processing will allow to make timely and operational management decisions on the operating activities of the enterprise. This method is easy to use and quite promising for the management of domestic companies. In combination with financial leverage, it allows you to estimate changes in net income of the enterprise, which uses borrowed capital when changes in sales revenue.

Класифікація

Ідентифікатори

Схожі роботи