Equity Research
Worked example of operating leverage: revenue $100M grows 10%, gross margin 60%, fixed opex $40M. What happens to EBIT?
Model answer
Base year: gross profit is 60% of $100M = $60M, minus $40M fixed opex = $20M EBIT, a 20% margin. Revenue grows 10% to $110M: gross profit becomes 60% of $110M = $66M, opex stays $40M, so EBIT is $26M…
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