Profit leverage effect

The profit leverage effect (PLE) is widely used to show how a reduction in COGS leads to improved profits faster than a corresponding increase in sales. A question often contemplated is, should the company increase sales or decrease costs to improve profitability quicker Using a simplified profit and loss statement (Table 10.1), PLE is demonstrated. As viewed in the table a base state is provided, and then increasing sales by 10% and reducing costs by 10% are compared. 

There are two major reasons why an organization should be involved in standards, including the international IT Security standards that are important to it. The first concerns the advantages such participation provides and the other concerns the risks that failure to participate allows. For international IT security standards, the results may have minor or major effects on different types of organizations. It must be obvious that IT vendors and particularly IT security vendors have a major stake in these standards. They effect their markets, business, profits and survival. For users, from countries to companies to individuals, the stakes are often less important but not in all cases. Countries are interested in their own protection, in the protection of their own investments, in the protection of their own industries and commerce, and in the protection of their own cultures. Companies have their own markets to protect, their own investments to leverage, and relationships with partners, customers, their countries, and their industries to consider. 

Leverage ratios a measure of a company s overall debt burden Activity ratios a measure of how effectively a company manages its assets Profitability ratios an indication of a firm s total operating performance, which is a combination of asset and income management... 

Capital structure is concerned with the ratio of borrowed capital to owner s equity. When inflation is low and the economy is stable, it is frequently cheaper to use borrowed money, if a company can secure lenders. However, a highly leveraged company—that is, one with a high debt-to-equity ratio—faces downside risk when business is bad. Stockholders receive high dividends when profits are good but bondholders expect the interest and principal to be paid on time, with the threat to a firm of insolvency and bankruptcy. Section 8.4.3 shows the effect of debt-to-equity ratio on company operations. Financial officers of companies are concerned with the optimum debt-to-equity ratio. 

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