CA Intermediate · Financial Management and Strategic Management · Financing Decisions - Leverages
Meera Industries has sales of ₹20,00,000, variable costs of ₹12,00,000, fixed costs of ₹4,00,000 and interest of ₹1,00,000. What is its degree of combined leverage (DCL)?
The degree of combined leverage is 2.67. Contribution is ₹8,00,000, EBIT is ₹4,00,000 and EBT is ₹3,00,000. DCL equals contribution divided by EBT, or DOL of 2 multiplied by DFL of 1.33, giving 2.67.
- A2.00
- B1.33
- C2.67Correct
- D3.00
Explanation
Contribution = 8,00,000. EBIT = 8,00,000 − 4,00,000 = 4,00,000. EBT = 3,00,000. DOL = 8/4 = 2; DFL = 4/3 = 1.33. DCL = 2 × 1.33 = 2.67, which also equals contribution/EBT = 8,00,000/3,00,000. Option 2.00 is only the DOL.
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