A firm has sales on ₹10 lacs and fixed cost on ₹1.5 lacs. Contribution margin is 30%. It has 10% debt of ₹8 lacs. Find out Operating leverage, Financial leverage and Combined leverage. Also find out that if the firm want

₹ Sales 10,00,000 Less: Variable cost (70%) 7,00,000 Contribution 3,00,000 Less: Fixed cost 1,50,000 EBIT 1,50,000 Less: Interest @ 10% of ₹8,00,000 80,000 PBT 70,000 Operating leverage = Contribution / EBIT = 3,00,000 / 1,50,000 = 2 Financial leverage = EBIT / PBT = 1,50,000 / 70,000 = 2.14 Combined leverage = operating leverage * financial leverage = 2 * 2.14 = 4.28 Percentage increase in sales to be needed to double EBIT Operating leverage is 2 (i.e. 50% increase in sales would cause 100% increase in EBIT) Therefore to double the EBIT the sales should increase by 50%.