Accounting Operating Leverage, Return on Investment, Economic Case Study

Open, View, and/or
Download this Document

Total Length: 580 words ( 2 double-spaced pages)

Total Sources: 0

Page 1 of 2

Accounting

Operating Leverage, Return on Investment, Economic value added and Net Profit Margin at Yum Brands

A firms performance is often measured using ratios. There are many different ratios which are used, all indicating different types of performance measurement; four of these measures are operating leverage, return on investment (ROI), economic value added (EVA) and net profit margin. These all provide the ability to perform historical assessment to assess the trends or patterns in the firms' performance when measured against itself, as well as allowing the firm to be assessed against other competitors or potential alternate investments. Each of the ratios will be examined and considered in the context of Yum Brands

Operating leverage

Operating leverage is a ratio which shows the companies fixed coasts to variable costs. To calculate the ratio it is necessary to have details of the fixed and the variables costs for the items produced. The equation to calculate the operating leverage is Q. x C/Q x C- FC, where Q. is the quantity, C is the contribution level, (that is the price per unit less the variable costs per unit) and FC are the fixed operating costs (Investing Answers, 2014).

The ratio is useful as it indicates the degree to which a firms' profits are sensitive to changes in sales volume; higher operating leverage indicates a greater sensitive to changes in sales numbers and forecasting risk. Firms which make only a few sales, but with each sale making a high level of profit are said to be highly leveraged (Investopedia, 2014).

Stuck Writing Your "Accounting Operating Leverage, Return on Investment, Economic" Case Study?

View All Our Example Accounting Operating Leverage, Return on Investment, Economic Case Study

Have A Custom Example Essay Written

A good example could be an aircraft manufacturer. A firm which sells a higher quantity of goods, but at a lower price with a lower profit per unit, which is the case withy Yum Brands, has a lower level of leverage. Yum Brands will have a lower level of leverage compared to retailers of larger ticket items. However, as the annual accounts do not give sufficient breakdown of the viable and fixed costs for the different products, it is not viable to calculate the operating leverage.

Return on investment (ROI)

The return on investment is a measure which is indicates the level of return or profit that is created by an investment. This is a relativity simply calculation, the profit is divided by the cost of the investment (Libby et al., 2010). This is expressed as a percentage. The measure is often used inside a firm to assess and compare potential outcomes of different projects. For investors, the return on investment will vary, depending….....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Accounting Operating Leverage Return On Investment Economic" (2014, January 20) Retrieved July 2, 2025, from
https://www.aceyourpaper.com/essays/accounting-operating-leverage-return-investment-181131

Latest MLA Format (8th edition)

Copy Reference
"Accounting Operating Leverage Return On Investment Economic" 20 January 2014. Web.2 July. 2025. <
https://www.aceyourpaper.com/essays/accounting-operating-leverage-return-investment-181131>

Latest Chicago Format (16th edition)

Copy Reference
"Accounting Operating Leverage Return On Investment Economic", 20 January 2014, Accessed.2 July. 2025,
https://www.aceyourpaper.com/essays/accounting-operating-leverage-return-investment-181131
   

Open, View, and/or
Download this Document
order custom essay example