Business risk The variability or uncertainty of a firms operating income (EBIT) Stocke EBIT冫FIRM EPS holders
Business Risk • The variability or uncertainty of a firm’s operating income (EBIT). EBIT FIRM EPS Stockholders
Business risk Affected by: Sales volume variability Competition Cost variability Product diversification Product demand Operating Leverage
Business Risk Affected by: • Sales volume variability • Competition • Cost variability • Product diversification • Product demand • Operating Leverage
Operating Leverage The use of fixed operating costs as opposed to variable operating costs a firm with relatively high fixed operating costs will experience more variable operating income if sales change
Operating Leverage • The use of fixed operating costs as opposed to variable operating costs. • A firm with relatively high fixed operating costs will experience more variable operating income if sales change
D
EBIT Operating Leverage
EBIT Operating Leverage