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  • 1.  Financial ,Raitos

    Posted 06-07-2012 03:04 AM

    Hi again,

    I want to clarify a formula about financial leverage in my mind.

    In gleim sources, the formula of degree of financial leverage is given by dividing EBIT by Net Income. But in answer key of some questions, it is found by dividing EBIT (Earnings Before Interest and Tax) by EBT(Earnings Before Tax).

    Which one is true,can anyone give some advise?

    Thanx.

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    Yeliz Ismi CPA
    Financial Supervisor
    Istanbul
    Turkey
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  • 2.  RE:Financial ,Raitos

    Posted 06-07-2012 04:56 AM


    Net Income and EBT(Earnings Before Tax) both are same.
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    Muhammad Chaudhary
    Supervisor
    Al Khalij Holding
    Doha
    Qatar
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    Original Message


  • 3.  RE:Financial ,Raitos

    Posted 06-07-2012 05:21 AM


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    Atef Mohamed
    Accountant
    Fayoum
    Egypt
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    dear muhammad 
    i think you are confused 
    because net income and EBT are not the same 
    net income equal EBT multiplied by ( 1 minus tax rate )





    Original Message


  • 4.  RE:Financial ,Raitos

    Posted 06-07-2012 09:16 AM

    Net Income is earnings after tax and is not the same thing as earnings before tax. 

    In the IMA's support package - there is a document entitled Ratio Definitions - and this is the version of the ratios IMA expects for us to utilize.  Degree of financial leverage per IMA source is:   % change in net income / % change in EBIT, or EBIT / EBT.



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    Patricia Abels CPA
    Academic
    The University of Findlay
    Findlay OH
    United States
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    Original Message


  • 5.  RE:Financial ,Raitos

    Posted 06-07-2012 04:56 AM
    Hi,

    If you can show both questions in full then somebody in this discussion forum will be able to explain clearly.
    Otherwise we can only guess and the answers given may be misleading.



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    Johanes Halim
    Director/Manager
    JAKARTA
    Indonesia
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    Original Message


  • 6.  RE:Financial ,Raitos

    Posted 06-07-2012 09:52 AM

    Correct - the nature of the problem would change how we respond. 

    After re-reading his question - I wonder if he is referring Operating Income instead of Net Income.  Operating Income is EBT and Operating Income is used quite frequently in CVP analysis.



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    Patricia Abels CPA
    Academic
    The University of Findlay
    Findlay OH
    United States
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    Original Message


  • 7.  RE:Financial ,Raitos

    Posted 06-07-2012 04:56 PM
    I'm pretty sure you are a genius Patricia.  You should teach a CPA class too. 

    As for the Gleim forumals...  This was one of my issues with Gleim.  If you go through the core concepts at the end of the each Study Unit it will give you the correct "final" formula.  In the text itself you will find some formulas in "steps", which when combined make up the final forumla.  this is helpful in understanding but can also be confusing.  But as everyone else has said its hard to know without knowing the exact question.  good luck!

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    Sandra Possin
    Seattle WA
    United States
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    Original Message