Gentech, Inc is an integrated circuit (microchip) manufacturer based o

Gentech, Inc is an integrated circuit (microchip) manufacturer based out of New Jersey. Its principal products include microprocessors and motherboard chipsets. Selected financial statement values for Gentech are shown in the table, below.

What is the degree of operating leverage for Gentech given the change in revenues from Year 1 to Year 2?

Gentech Inc ($000s)
Year 1 Year 2
Revenues $70,000 $75,000
Cost of Goods Sold 45,000 48,500
SG&A 13,000 13,500
Depreciation 3,000 3,200
EBIT 9,000 9,800

A) 0.13
B) 1.17
C) 1.00
D) 1.24
E) 0.75

ANSWER

D