How the force of action of the operating lever is calculated is static. Operating leverage effect (operating leverage). The essence and methods of calculating the impact force of the operating leverage (the level of operating leverage). VM - gross margin

Operating leverage (production leverage) is a potential opportunity to influence a company's profit by changing the cost structure and production volume.

The effect of operating leverage is that any change in sales revenue always leads to a larger change in profit. This effect is caused by the different degree of influence of the dynamics of variable costs and fixed costs on the financial result when the volume of output changes. By influencing the value of not only variable, but also fixed costs, it is possible to determine by how many percentage points the profit will increase.

Level or strength of impact operating lever(Degree operating leverage, DOL) is calculated using the formula:

DOL = MP / EBIT = ((p-v) * Q) / ((p-v) * Q-FC)

Where,
MP - margin profit;
EBIT - profit before interest;
FC - conditionally fixed production costs;
Q is the volume of production in physical terms;
p is the price per unit of production;
v - variable costs per unit of output.

The level of operating leverage allows you to calculate the amount of percentage change in profit depending on the dynamics of sales by one percentage point. The change in EBIT will be DOL%.

The greater the share of the company's fixed costs in the cost structure, the higher the level of operating leverage, and, consequently, the greater the manifestation of business (production) risk.

As revenue moves away from the break-even point, the force of the operating leverage decreases, while the financial strength of the organization, on the contrary, grows. This Feedback associated with a relative decrease in fixed costs of the enterprise.

Since many enterprises produce a wide range of products, it is more convenient to calculate the level of operating leverage using the formula:

DOL = (S-VC) / (S-VC-FC) = (EBIT + FC) / EBIT

Where, S - sales proceeds; VC - variable costs.

The level of operating leverage is not constant and depends on a certain, baseline value of the implementation. For example, with a break-even sales volume, the level of operating leverage will tend to infinity. The level of operating leverage is greatest at a point slightly above the breakeven point. In this case, even a slight change in sales leads to a significant relative change in EBIT. The change from zero profit to any value is an infinite percentage increase.

In practice, those companies that have a large share of fixed assets and intangible assets (intangible assets) in the structure of the balance sheet and large administrative expenses have great operating leverage. Conversely, the minimum level of operating leverage is inherent in companies with a large share of variable costs.

Thus, understanding the mechanism of action of production leverage allows you to effectively manage the ratio of fixed and variable costs in order to increase the profitability of the company's operating activities.

Operational leverage is present when the firm has fixed operating costs — regardless of the volume of production.
The presence in the composition of costs of any amount of their constant types leads to the fact that when the volume of sales changes, the amount of profit always changes at an even faster pace.
In other words, fixed operating costs by the very fact of their existence cause a disproportionately higher change in the amount of profit of the enterprise with any change in volume product sales regardless of the size of the enterprise, industry specificities and other factors.
The lever also works in the opposite direction - it enhances not only the company's profits, but also its losses. In the latter case, losses can arise as a result of an unexpected drop in sales due to consumers' refusal to buy products. of this enterprise(manufacturer).
The action of the operational (production, economic) leverage is manifested in the fact that any change in sales proceeds always generates a stronger change in profit.
However, the degree of profit sensitivity to changes in sales proceeds varies greatly across enterprises with different ratios of fixed and variable costs. The ratio of fixed and variable costs of the enterprise, allowing the use of the mechanism of operating leverage is characterized by the force of the impact of operating leverage (SWOR).
In practical calculations, to determine the strength of the influence of the operating leverage, the ratio of the so-called marginal income (MD) to profit (P) is used.
(7.6)
Marginal income (MD) is the difference between sales revenue and variable costs, this indicator in the economic literature is also referred to as the amount of coverage. It is desirable that the marginal income is sufficient not only to cover fixed costs, but also to generate profits.
SWOR shows how many percent the profit will change when the revenue changes by 1 percent.
The operating leverage is always calculated for a specific sales volume, for a given sales revenue. When the proceeds from sales change, the strength of the influence of the operating leverage also changes. The strength of the impact of operating leverage largely depends on the industry average level of capital intensity: the higher the cost of fixed assets, the higher the fixed costs.
At the same time, the effect of operating leverage can be controlled precisely on the basis of taking into account the dependence of the strength of the leverage on the value of fixed costs: the higher the fixed costs (PostZ) and the lower the profit, the stronger the operating leverage.
With a decrease in the company's income, it is difficult to reduce fixed costs. This means that high specific gravity fixed costs in their total amount indicates a weakening of the flexibility of the enterprise. If it is necessary to leave your business and move to another field of activity, it will be very difficult for an enterprise to diversify abruptly both in the organizational and especially in the financial sense.
The increased share of fixed costs increases the action of the operating leverage, and the decline in business activity of the enterprise translates into multiplied profit losses. We can only console ourselves with the fact that if revenue is still growing at a sufficient pace, then with a strong operating leverage, although the company pays the maximum amount of income tax, it has the ability to pay solid dividends and provide financing for development.
Therefore, we can say that the strength of the impact of operating leverage indicates the degree of entrepreneurial risk associated with a given firm: the higher the value of the strength of the impact of production leverage, the greater the entrepreneurial risk associated with the activities of this enterprise.
The effect of the effect is associated with the unequal influence of fixed and variable costs on the financial result when the volume of production (sales) changes.
The ratio between fixed and variable costs for an enterprise that uses the mechanism of production leverage with varying intensity of impact on profits is expressed by the coefficient of this leverage. It is determined by the formula:
, (7.7)
where is the coefficient of production (operating) leverage;
З - total costs
The higher the value of this coefficient, the more the company is able to accelerate the rate of profit growth in relation to the rate of increase in the volume of production (sales). In other words, with identical rates of increase in the volume of production, an enterprise that has a more significant coefficient of production leverage (all other things being equal) will always increase the amount of profit to a greater extent in comparison with enterprises with a lower value of this coefficient.
The specific ratio of the increase in the amount of profit and the value of the volume of production (sales), achieved with a set value of the coefficient of production leverage, is characterized by the parameter "effect of production leverage."
The standard formula for calculating this indicator is:
, (7.8)
where EPR is the effect of production leverage;
? P - the rate of profit growth;
? OP ​​- the rate of increase in the volume of production (sales).
By setting one or another rate of increase in the volume of production, it is always possible to calculate the extent to which the mass of profit increases with the existing value of the coefficient of production leverage at the enterprise.
The positive impact of operating leverage begins to manifest itself only after the enterprise has overcome the break-even point of its activities.
The threshold of profitability is the proceeds from sales at which the enterprise no longer has losses, but does not yet have profits. The marginal income is enough to cover fixed costs, and the profit is zero.
The profitability threshold (PR) can be calculated as follows:
, (7.9)
where KMD is the ratio of marginal income, the share of marginal income in sales proceeds;
В– sales proceeds.
Having determined to what quantity of produced goods corresponds, at given selling prices, the threshold of profitability, it is possible to calculate the threshold (critical) value of the volume of production (in pieces, etc.) (PCT). It is unprofitable for the enterprise to produce below this amount. The threshold value is found by the formula:
(7.10)
After overcoming the break-even point, the higher the impact force of the OR, the greater the impact on the profit growth will be possessed by the enterprise, increasing the volume of product sales.
The greatest positive impact of OR is achieved in the field as close as possible to the break-even point.
Using the operating leverage, you can choose the most effective financial policy of the enterprise.
The key elements of operational analysis are: operational leverage, profitability threshold, and the financial strength of the enterprise.
The financial strength of an enterprise (FFP) is the difference between the achieved actual proceeds from sales and the threshold of profitability. If the sales proceeds fall below the profitability threshold, then financial condition the enterprise deteriorates, a shortage of liquid funds is formed:
(7.11)
The relative size of the margin of financial strength in percentage is set by the formula:
. (7.12)
The margin of financial strength is the higher, the lower the force of influence of the operating leverage.
. (7.13)

The effect of operating leverage is the existence of a relationship between the change in sales revenue and the change in profit. The operating leverage is calculated as the quotient of the sales proceeds after recovering the variable costs of profit. Operating leverage generates entrepreneurial risk.

The effect of operating leverage (force of influence) is determined by the percentage change in operating profit with a one-percent change in the volume of sales from a fixed level Q. The assessment of the effect is based on the general concept of elasticity

A number of indicators are used to calculate the effect or strength of a lever. This requires the division of costs into variables and fixed costs using an intermediate result. This value is usually called gross margin, coverage amount, contribution.

These indicators include:

gross margin = profit from sales + fixed costs;

contribution (coverage amount) = sales revenue - variable costs;

leverage effect = (revenue from sales - variable costs) / profit from sales.

Operating leverage is manifested in cases where the company has fixed costs regardless of the volume of production (sales). In the short term, in contrast to fixed variable costs, they can change under the influence of adjustments in the volume of production (sales). In the long run, all costs are variable.

The production leverage effect arises from the heterogeneous cost structure of the enterprise. The change in variable costs is directly proportional to the change in the volume of production and proceeds from sales, and fixed costs over a fairly long period of time almost do not respond to changes in the volume of production. A sharp change in the amount of fixed costs occurs due to a fundamental restructuring organizational structure enterprises during periods of mass replacement of fixed assets and high-quality

"technological leaps". Thus, any change in sales proceeds generates an even stronger change in the carrying profit.

The strength of the impact of production leverage depends on the share of fixed costs in the total costs of the enterprise.

The effect of production leverage is one of the most important indicators of financial risk, since it shows how many percent the balance sheet profit will change, as well as the economic profitability of assets when the volume of sales or proceeds from the sale of products (works, services) changes by one percent.

In practical calculations, to determine the strength of the influence of operating leverage on a particular enterprise, the result from the sale of products after reimbursement of variable costs (VC), which is often called marginal income, is used:

MD = OP-VC
where OP is the volume of sales, goods; VC - variable costs.

where FC - fixed costs; EBIT - operating profit (profit from sales - before deducting interest on loans and income tax).

Kmd = MD / OP,
where KMD is the coefficient of marginal income, unit share.

It is desirable that the marginal income not only covers fixed costs, but also serves as a source of generating operating profit (EBIT) /

After calculating the marginal income, you can determine the strength of the impact of production leverage (SVPR):

SVPR = MD / EBIT
This ratio expresses how many times the profit margin exceeds the operating profit.

The operating leverage is always calculated for a specific sales volume. With a change in sales revenue, so does its impact. Operating leverage allows you to assess the impact of changes in sales volumes on the amount of future profits of the organization. Operating leverage calculations show how much the profit will change if the sales volume changes by 1%.

The effect of operating leverage is that any change in sales revenue (due to a change in volume) leads to an even stronger change in profit. The effect of this effect is associated with the disproportionate influence of fixed and variable costs on the result of the financial and economic activity of the enterprise when the volume of production changes.

The strength of the influence of the operating leverage shows the degree of entrepreneurial risk, that is, the risk of losing profits associated with fluctuations in the volume of sales. The greater the effect of operating leverage (the greater the proportion of fixed costs), the greater the entrepreneurial risk.

Thus, modern management costs assumes quite diverse approaches to accounting and analysis of costs, profits, and entrepreneurial risk. You have to master these interesting tools in order to ensure the survival and development of your business.

DEFINITION

Operating lever(operating or production leverage) is an indicator reflecting the excess of the profit growth rate over the company's revenue growth rate.

The purpose of the operation of any company is to increase profit from sales, including net profit, which should be aimed at maximizing productivity and growth financial efficiency(value) of the enterprise.

The operating leverage formula allows you to manage your future sales profit by planning revenue for the future.

The main factors affecting the volume of revenue are:

• Product prices,
• Variable costs that vary with changes in production;
• Fixed costs that do not depend on production volumes.

The goal of any enterprise is to optimize variable and fixed costs, adjust pricing policy, thereby increasing the profit from the sale.

Operating Leverage Formula

The calculation method using the operating leverage formula is as follows:

OR = (V - Per.Z) / (V - Per.Z - Const.Z)

OR = (V - Per.Z) / P

OR = VM / P = (P + Const.Z) / P = 1 + (Const.Z / P)

Here OR is an indicator of operating leverage,

B - revenue,

Per.Z - variable costs,

Const.Z - fixed costs,

P is the amount of profit,

VM - gross margin

Operating leverage and financial strength

The operating leverage ratio is directly related to the financial safety margin through the ratio:

RR = 1 / ZFP

Here OP is the operating lever,

ZFP is a margin of financial strength.

With an increase in the indicator of operating leverage, the company's financial strength decreases, which contributes to its approach to the threshold of profitability. In this situation, the company is unable to provide sustainable financial development... To prevent this situation, it is recommended to constantly monitor production risks and their impact on financial performance.

What the operating lever shows

The operating lever can be of two types:

• Price operating lever, with the help of which price risk is reflected (the effect of price changes on profit margins);
• The natural operating lever is production risk or the dependence of profit on the volume of output.

The high value of the indicator of operating leverage reflects a significant excess of the amount of revenue over profit, which indicates an increase in fixed and variable costs.

The increase in costs is due to the following reasons:

• Modernization of utilized facilities, increasing production space, increasing the number of production workers, introducing innovations and improving technologies.
• Minimization of prices for products, low-efficiency growth of costs for salaries low-skilled personnel, an increase in the number of defective products, a decrease in the efficiency of production lines, etc.

Thus, all production costs can be effective, which increase the production and scientific and technological potential, as well as ineffective, which hinder the development of the enterprise.

Examples of problem solving

EXAMPLE 1

Operational analysis is used to identify the dependence of financial performance on costs and sales volumes.

Operational analysis is an analysis of the results of an enterprise's activities based on the ratio of production volumes, profits and costs, which allows you to determine the relationship between costs and incomes for different volumes of production. His task is to find the most advantageous combination of variable and fixed costs, price and volume of sales. This type of analysis is considered one of the most effective means of planning and forecasting the activities of an enterprise.

Operational analysis, also known as cost-volume-profit (CVP) analysis, is an analytical approach to studying the relationship between costs and profits at different levels of output.

CVP - analysis, according to OI Likhacheva, considers the change in profit as a function of the following factors: variable and fixed costs, the price of products (works, services), the volume and range of products sold.

CVP - analysis allows:

Determine the amount of profit for a given volume of sales.

Plan the volume of sales of products that will provide the desired profit value.

Determine the sales volume for the breakeven operation of the enterprise.

Establish a margin of financial strength of the enterprise in its current state.

Estimate how changes in selling price, variable costs, fixed costs and production volume will affect profit.

Establish the extent to which it is possible to increase / decrease the strength of the operating leverage, maneuvering variable and fixed costs, and thereby change the level of operational risk of the enterprise.

Determine how changes in the range of products (works, services) sold will affect potential profit, break-even and target revenue.

Operational analysis is not only a theoretical method, but also a tool that enterprises widely use in practice to make management decisions.

The purpose of the operational analysis is to determine what will happen to the financial results if the volume of production is changed.

This information is essential for a financial analyst, since knowledge of this dependence allows one to determine critical levels of output, for example, to establish a level when the company has no profit and does not incur losses (it is at the break-even point).

The economic model of CVP analysis shows the theoretical relationship between total revenues (revenues), costs and profits, on the one hand, and the volume of production, on the other.

When interpreting data from operational analysis, it is necessary to be aware of the important assumptions on which the analysis is based:

Costs can be accurately divided into fixed and variable components. Variable costs vary in proportion to the volume of production, and fixed costs are unchanged at any level.

They produce one product or an assortment that remains the same throughout the analyzed period (with a wide range of sales, the CVP analysis algorithm is complicated).

Costs and revenues depend on the volume of production.

The volume of production is equal to the volume of sales, i.e. at the end of the analyzed period, the enterprise does not have stocks of finished products (or they are insignificant).

All other variables (except for the volume of production) do not change during the analyzed period, for example, the price level, the range of products sold, labor productivity.

The analysis is applicable only for a short time period (usually a year or less), during which the output of the enterprise is limited by the existing production capacity.

Gavrilova A.N. highlights the following main indicators of operational analysis: break-even point (profitability threshold); determination of the target sales volume; financial safety margin; assortment policy analysis; operating lever.

The most commonly used financial indicators for conducting operational analysis are as follows:

1. Coefficient of change in gross sales(Kivp), characterizes the change in the volume of gross sales of the current period in relation to the volume of gross sales of the previous period.

Kivp = (Revenue for the current year - Revenue for the previous year) / Revenue for the previous year

2. Gross margin ratio(Sqm). Gross margin (the amount to cover fixed costs and generate profits) is defined as the difference between revenue and variable costs.

Sqm = Gross Margin / Sales Revenue

Auxiliary coefficients are calculated in the same way:

Coefficient of production cost of goods sold = Cost of goods sold / Revenue from sales

General and Administrative Cost Ratio = Sum of General and Administrative Costs / Sales Revenue, etc.

3. Net profit and the net profit ratio (profitability of sales) (Kchp).

Kchp = Net profit / Sales revenue

This ratio shows how effectively the entire management team "worked", including production managers, marketers, financial managers, etc.

4. Break-even point(the threshold of profitability) is such a revenue (or quantity of products) that provides full coverage of all variable and conditionally fixed costs at zero profit. Any change in revenue at this point results in a profit or loss.

The profitability threshold can be determined both graphically (see Figure 1) and analytically. With the graphical method, the break-even point (profitability threshold) is found as follows:

1. find the value of fixed costs on the Y-axis and plot the line of fixed costs on the graph, for which we draw a straight line parallel to the X-axis; 2. select any point on the X axis, i.e. any value of the volume of sales, we calculate for a given volume the value of total costs (fixed and variable). We build a straight line on the chart corresponding to this value; 3. Select again any value of the sales volume on the X-axis and for it we find the amount of sales proceeds.

We build a straight line corresponding to this value. The break-even point on the graph is the intersection point of straight lines plotted according to the value of total costs and gross revenues (Figure 1). At the break-even point, the revenue received by the enterprise is equal to its total costs, while the profit is zero. The amount of profit or loss is shaded. If the company sells products less than the threshold sales volume, then it suffers losses, if more, it makes a profit.

Figure 1. Graphical definition of the break-even point (profitability threshold)

Profitability Threshold = Fixed Cost / Gross Margin Ratio

You can calculate the threshold of profitability of both the entire enterprise and individual types of products or services. The enterprise begins to make a profit when the actual revenue exceeds the threshold. The greater this excess, the greater the financial strength of the enterprise and the greater the amount of profit.

5. The margin of financial strength... Excess of actual sales proceeds over the profitability threshold.

Financial strength margin = enterprise revenue - profitability threshold

The strength of the influence of the operating leverage (shows how many times the profit will change when the revenue from sales changes by one percent and is defined as the ratio of gross margin to profit).

P.S. When conducting operational analysis, it is not enough just to calculate the coefficients, it is necessary to draw the correct conclusions based on the calculations:

develop possible scenarios for the development of the enterprise and calculate the results to which they can lead;

find the most advantageous relationship between variable and fixed costs, product price and production volume;

decide which areas of activity (the production of which types of products) need to be expanded, and which ones to curtail.

P.P.S. Operational analysis results versus other types of results financial analyzes the activities of the enterprise are usually a trade secret of the enterprise.

Since the listed assumptions of the CVP analysis model are not always feasible in practice, the results of the break-even analysis are somewhat arbitrary. Therefore, a complete formalization of the procedure for calculating the optimal volume and structure of sales in practice is impossible, and a lot depends on the intuition of workers and heads of economic services, based on their own experience. To determine the approximate volume of sales for each product, a formal (mathematical) apparatus is used, and then the resulting value is adjusted taking into account other factors (long-term strategy of the enterprise, limitations on production capacity, etc.).

Operating leverage is closely related to a company's cost structure. Operating lever or production leverage(leverage - leverage) is a mechanism for managing the company's profit, based on improving the ratio of fixed and variable costs.

With its help, you can plan the change in the profit of the organization depending on the change in the volume of sales, as well as determine the break-even point. A prerequisite for the use of the operating leverage mechanism is the use of a marginal method based on the division of costs into fixed and variable costs. The lower the proportion of fixed costs in the total cost of the enterprise, the more the amount of profit changes in relation to the rate of change in the company's revenue.

The operating lever is a tool for identifying and analyzing this relationship. In other words, it is designed to establish the effect of profit on the change in the volume of sales. The essence of its action lies in the fact that with an increase in the volume of proceeds, a higher rate of growth in the volume of profit is observed, but this higher rate of growth is limited by the ratio of fixed and variable costs. The lower the proportion of fixed costs, the less this limitation will be.

Production (operating) leverage is quantitatively characterized by the ratio between fixed and variable costs in their total amount and the value of the “Profit before interest and taxes” indicator. Knowing the production leverage, it is possible to predict the change in profit when the revenue changes. Distinguish between price and natural leverage.

Price operating lever(Rts) is calculated by the formula:

Rts = V / P

where, B - sales proceeds; P - profit from sales.

Considering that B = P + Zper + Zpost, the formula for calculating the price operating leverage can be written as:

Rts = (P + Zper + Zpost) / P = 1 + Zper / P + Zpost / P

where, Zper - variable costs; Zpost - fixed costs.

Natural operating lever(Рн) is calculated by the formula:

Rn = (V-Zper) / P = (P + Zpost) / P = 1 + Zpost / P

where, B - sales proceeds; P - profit from sales; Zper - variable costs; Zpost - fixed costs.

Operating leverage is not measured as a percentage, as it is the ratio of profit margin to sales profit. And since the marginal income, in addition to the profit from sales, also contains the amount of fixed costs, the operating leverage is always greater than one.

The value operating leverage can be considered an indicator of the riskiness of not only the enterprise itself, but also the type of business in which this enterprise is engaged, since the ratio of fixed and variable costs in the overall cost structure is a reflection of not only the characteristics of this enterprise and its accounting policy, but also the industry-specific features of the activity.

However, it is impossible to assume that a high share of fixed costs in the structure of an enterprise's costs is a negative factor, just as it is impossible to absolute the value of marginal income. An increase in production leverage may indicate an increase in the production capacity of an enterprise, technical re-equipment, and an increase in labor productivity. The profit of an enterprise with a higher level of production leverage is more sensitive to changes in revenue. With a sharp drop in sales, such an enterprise can very quickly "fall" below the break-even level. In other words, an enterprise with a higher level of production leverage is more risky.

Since operating leverage shows the dynamics of operating profit in response to a change in the company's revenue, and financial leverage characterizes the change in profit before tax after interest on loans and borrowings in response to a change in operating profit, the aggregate leverage gives an idea of ​​the percentage of change in profit before taxes. after interest payment when revenue changes by 1%.

Thus, a small operating lever can be strengthened by attracting debt capital. High operating leverage, on the other hand, can be offset by low leverage. With these effective tools- operational and financial leverage - the company can achieve the desired return on invested capital with a controlled level of risk.

In conclusion, we list the tasks that are solved using the operating lever:

calculation financial result for the organization as a whole, as well as for the types of products, works or services on the basis of the "costs - volume - profit" scheme;

defining the critical point of production and using it in making management decisions and setting prices for works;

making decisions on additional orders (answering the question: will an additional order lead to an increase in fixed costs?);

making a decision to stop the production of goods or the provision of services (if the price falls below the level of variable costs);

solving the problem of maximizing profits due to a relative reduction in fixed costs;

using the profitability threshold when developing production programs, setting prices for goods, works or services.