Operating leverage (production leverage) is a potential opportunity to influence the 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 varying degrees 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, you can determine by how many percentage points the profit will increase.

The level or strength of the impact of the operating leverage (Degree operating leverage, DOL) is calculated by the formula:

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

Where,
MP - marginal profit;
EBIT - earnings before interest;
FC - semi-fixed production costs;
Q is the volume of production in natural terms;
p - price per unit of production;
v- variable costs per unit of production.

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

The larger the share of the company's fixed costs in the cost structure, the higher the level of operating leverage, and therefore, the more business (production) risk is manifested.

As revenue moves away from the break-even point, the impact of operating leverage decreases, and the organization's financial strength, on the contrary, grows. This Feedback associated with a relative decrease in the 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 a constant value and depends on a certain, basic implementation value. For example, with a breakeven volume of sales, the level of operating leverage will tend to infinity. The level of operating leverage is greatest at a point just 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 profit represents an infinite percentage increase.

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

Thus, understanding the mechanism of operation 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 operations.

The activities of almost any company are subject to risks. To achieve its goals, the company develops forward-looking financial indicators, including forecasts for revenue, cost, profit, etc. In addition, the company attracts financial resources for the implementation of investment projects. Therefore, the owners expect that the assets will bring additional profit and provide a sufficient level of return on invested capital. (return on equity, ROE):

Where NI (net income)- net profit; E (equity) is the equity capital of the company.

However, due to competition in the market, ups and downs of the economy, a situation arises when the actual values ​​of revenue and other key indicators differ significantly from the planned ones. This type risk is called operational (or production) risk (business risk), and it is associated with the uncertainty of obtaining operating income of the company due to changes in the situation on the sales market, falling prices for goods and services, as well as rising tariffs and tax payments. Great impact on production risks in modern economy leads to rapid obsolescence of products. Production risk leads to uncertainty in planning the profitability of the company's assets ( return on assets, ROA):

Where A (assets)– assets; I (interests)- Percentage to be paid. In the absence of debt financing, the interest payable is zero, so the value ROA for a financially independent company is equal to the return on equity (ROE) A production risk a company is determined by the standard deviation of its expected return on equity, or ROE.

One of the factors affecting the production risk of a company is share of fixed costs in its general operating expenses, which must be paid regardless of how much revenue its business generates. To measure the degree of influence of fixed costs on the company's profits, you can use the indicator of operating leverage, or leverage.

Operating lever (operating leverage) due to the company's fixed costs, as a result of which a change in revenue causes a disproportionate, stronger decrease or increase in the return on equity.

A high level of operating leverage is characteristic of capital-intensive industries (steel, oil, heavy engineering, forestry), which incur significant fixed costs, such as the maintenance and maintenance of buildings and premises, rental costs, fixed general production costs, communal payments, wage management personnel, property and land tax, etc. The peculiarity of fixed costs is that they remain unchanged and with the growth of production volumes, their value per unit of output decreases (the effect of scale of production). At the same time, variable costs increase in direct proportion to the growth of production, however, per unit of output, they are a constant value. To study the relationship between a company's sales volume, expenses and profit, a break-even analysis is carried out, which allows you to determine how much goods and services need to be sold in order to recover fixed and variable costs. This quantity of goods and services sold is called breakeven point (break-even point), and the calculations are carried out within break-even analysis (break-even analysis). The break-even point is the critical value of the volume of production, when the company is not yet making a profit, but is no longer incurring losses. If sales rise above this point, then a profit is formed. To determine the break-even point, first consider Fig. 9.4, which shows how the operating profit of the company is formed.

Rice. 9.4.

The break-even point is reached when the revenue covers operating expenses, i.e. operating profit is zero, EBIT= 0:

Where R– selling price; Q- the number of units of production; V- variable costs per unit of output; F- total fixed operating costs.

where is the breakeven point.

Example 9.2. Let us assume that Charm, a cosmetics company, has a fixed cost of RUB 3,000, a unit price of RUB 100, and a variable cost of RUB 60. per unit. What is the breakeven point?

Solution

We will carry out the calculations according to the formula (9.1):

In Example 9.2, we showed that the company needs to sell 75 units. products to cover their operating expenses. If you manage to sell more than 75 units. product, then its operating profit (and therefore, ROE in the absence of debt financing) will begin to grow, and if it is less, then its value will be negative. At the same time, as is clear from formula (9.1), the break-even point will be the higher, the greater the size of the company's fixed costs. A higher level of fixed costs requires more products to be sold in order for the company to start making a profit.

Example 9.3. It is necessary to conduct a break-even analysis for two companies, data for one of them - "Sharm" - we considered in example 9.2. The second company - "Style" - has higher fixed costs at the level of 6000 rubles, but its variable costs are lower and amount to 40 rubles. per unit, the price of products is 100 rubles. for a unit. The income tax rate is 25%. Companies do not use debt financing, so the assets of each company are equal to the value of their own capital, namely 15,000 rubles. It is required to calculate the break-even point for the company "Style", as well as to determine the value ROE for both companies with sales volumes of 0, 20, 50, 75, 100, 125, 150 units. products.

Solution

First, let's determine the break-even point for the Style company:

Let's calculate the value of the return on equity of companies for different sales volumes and present the data in Table. 9.1 and 9.2.

Table 9.1

Sharm company

		Operating costs, rub.		Net profit, rub., EBIT About -0,25)	ROE, % NI/E

Table 9.2

Company "Style"

		Operating costs, rub.		Net profit, rub., EBIT (1 -0,25)	ROE, % NI/E

Due to the higher level of fixed costs for the company "Style", the break-even point is reached at a higher volume of sales, therefore, in order for the owners to make a profit, it is required to sell more products. It is also important for us to look at the change in profit that occurs in response to a change in sales, for this we will build graphs (Fig. 9.5). As you can see, due to lower fixed costs, the break-even point for the company "Sharm" (chart 1) is lower than for the company "Style". For the first company, it is 75 units, and for the second - 100 units. After the company sells products in excess of the break-even point, revenue covers operating expenses and additional profit is formed.

So, in the considered example, we have shown that in the case of a higher share of fixed costs in costs, the break-even point is reached with a larger volume of sales. After reaching the break-even point, the profit begins to grow, but as is clear from Fig. 9.4, in the case of higher fixed costs, profit grows faster for Style than for Charm. In the case of a decrease in activity, the same effect occurs, only a decrease in sales leads to the fact that losses grow faster for a company with higher fixed costs. Thus, fixed costs create a leverage that, when production increases or decreases, causes more significant changes in profit or loss. As a result, the values ROE deviate more for companies with higher fixed costs, which increases risk. Using the calculation of the effect of operating leverage, you can determine how much the operating profit will change when the company's revenue changes. Operating leverage effect (degree of operating leverage, DOL) shows by what percentage the operating profit will increase / decrease if the company's revenue increases / decreases by 1%:

Where EBIT- operating profit of the company; Q- sales volume in units of production.

However, the higher specific gravity fixed costs in the company's total operating expenses, the higher the operating leverage. For a specific volume of production, the operating leverage is calculated by the formula

(9.2)

If the value of the operating leverage (leverage) is equal to 2, then with an increase in sales by 10%, operating profit will increase by 20%. But at the same time, if the sales revenue decreases by 10%, then the company's operating profit will also decrease more significantly - by 20%.

Rice. 9.5.

If the brackets are opened in formula (9.2), then the value QP will correspond to the company's revenue, and the value QV- total variable costs:

Where S- the company's revenue; TVС- total variable costs; F- fixed costs.

If a company has a high level of fixed costs in general expenses, then the value of operating income will change significantly with revenue fluctuations, and there will also be a high dispersion of the return on equity compared to a company that produces similar products, but has a lower level of operating leverage.

The results of the company's activities largely depend on the market situation (changes in GDP, fluctuations in interest rates, inflation, changes in the exchange rate of the national currency, etc.). If the company is characterized by high operating leverage, then a significant proportion of fixed costs enhances the consequences of negative changes in the markets, increases the company's risks. Indeed, variable costs will decline following the decline in production caused by the impact market factors, but if fixed costs cannot be reduced, then profits will decline.

Is it possible to reduce the level of production risk of the company?

To some extent, companies can influence the level of their operating leverage by controlling the amount of fixed costs. When choosing investment projects, a company can calculate the break-even point and operating leverage for different investment plans. For example, trade company can analyze two sales options household appliances- V shopping malls or over the Internet. Obviously, the first option involves high fixed rental costs. trading floors, while the second trading option does not involve such costs. Therefore, in order to avoid high fixed costs and the risk associated with them, the company can provide a way to reduce them during the project development stage.

To reduce fixed costs, the company may also switch to subcontracts with suppliers and contractors. The experience of Japanese companies using subcontracting is widely known, in which a significant part of the production of components is transferred to subcontractors, the parent company concentrates on the most difficult technological processes, and fixed costs are reduced due to the withdrawal of individual capital-intensive industries to subcontractors. The importance of managing fixed costs is also related to the fact that their share has a great influence on the financial leverage, on the formation of the capital structure, which we will discuss in the next paragraph.

Operating leverage is present when a firm has fixed operating costs—regardless of production volumes.
The presence in the composition of the 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 the volume of sales of products, regardless of the size of the enterprise, industry characteristics and other factors.
The lever works in reverse side– enhances not only the profits of the company, but also its losses. In the latter case, losses may arise as a result of an unexpected drop in sales due to the refusal of consumers to buy products of this enterprise (manufacturer).
The action of the operational (production, economic) lever is manifested in the fact that any change in sales proceeds always generates a stronger change in profit.
However, the degree of sensitivity of profit to changes in sales proceeds varies greatly in enterprises with a different ratio of fixed and variable costs. The ratio of fixed and variable costs of the enterprise, allowing the use of the mechanism of the operating lever is characterized by the force of the impact of the operating lever (CWOR).
In practical calculations, to determine the strength of the impact of the operating lever, the ratio of the so-called marginal income (MA) to profit (P) is used.
(7.6)
Marginal income (MD) is the difference between sales proceeds and variable costs, this indicator in the economic literature is also referred to as the amount of coverage. It is desirable that marginal income is enough not only to cover fixed costs, but also to generate profits.
SVOR shows how much the profit will change with a change in revenue by 1 percent.
The force of operating leverage is always calculated for a certain volume of sales, for a given sales proceeds. When the proceeds from sales change, the strength 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 greater the cost of fixed assets, the greater the fixed costs.
At the same time, the effect of the operating lever can be controlled precisely on the basis of taking into account the dependence of the force of the lever on the value of fixed costs: the larger the fixed costs (Fix) and the lower the profit, the stronger the operating lever.
When the income of the enterprise decreases, fixed costs are difficult to reduce. This means that a high proportion of fixed costs in their total amount indicates a weakening of the enterprise's flexibility. If it is necessary to leave your business and move to another area of ​​activity, it will be very difficult for an enterprise to diversify abruptly, both organizationally and especially financially.
The increased share of fixed costs increases the effect of operating leverage, and the decrease in the business activity of the enterprise results in multiplied losses in profits. It remains to be consoled by the fact that if the revenue is still growing at a sufficient pace, then with a strong operating leverage, the enterprise, although it pays the maximum amount of income tax, is able to pay solid dividends and provide financing for development.
Therefore, we can say that the strength of the impact of the operating lever indicates the degree of entrepreneurial risk associated with this firm: the higher the value of the impact of the production lever, the greater entrepreneurial risk associated with the activities of this enterprise.
The action 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 different 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 (operational) leverage;
Z - total costs
The higher the value of this coefficient, the more the enterprise is able to accelerate the rate of profit growth in relation to the rate of increase in production (sales). In other words, at identical rates of growth in output, an enterprise that has a higher coefficient of production leverage (ceteris paribus) will always increase the amount of profit to a greater extent compared to 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 at 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 the production lever;
?П - profit growth rate;
?OP - the rate of increase in 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 value of the coefficient of production leverage prevailing at the enterprise.
The positive impact of the operating lever begins to manifest itself only after the company has overcome the break-even point of its activities.
The threshold of profitability is such a proceeds from the sale at which the company no longer has losses, but still does not have profits. Marginal income is enough to cover fixed costs, and the profit is zero.
Profitability Threshold (PR) can be calculated as follows:
, (7.9)
where KMD is the coefficient of marginal income, the share of marginal income in sales proceeds;
B is sales revenue.
Having determined what quantity of manufactured goods corresponds, at given selling prices, to the profitability threshold, it is possible to calculate the threshold (critical) value of the volume of production (in pieces, etc.) (PKT). Below this quantity, it is unprofitable for the enterprise to produce. The threshold value is found by the formula:
(7.10)
After overcoming the break-even point, the higher the impact of the OR, the greater the impact on profit growth will be the company, increasing the volume of sales.
The greatest positive impact of OP is achieved in a field as close as possible to the breakeven point.
Using operating leverage, you can choose the most effective financial policy of the enterprise.
The key elements of operational analysis are: operating leverage, margin of profitability and financial strength of the enterprise.
The margin of financial strength of an enterprise (FFR) is the difference between the actual sales proceeds achieved and the profitability threshold. If the sales proceeds fall below the profitability threshold, then financial condition enterprises are deteriorating, there is a shortage of liquid funds:
(7.11)
The relative size of the financial safety margin as a percentage is determined by the formula:
. (7.12)
The margin of financial strength is the higher, the lower the force of the impact of the operating leverage.
. (7.13)

Introduction 3

1. Operating lever effect 4

2. Calculation of the effect of operating leverage 6

Conclusion 13

References 14

Introduction

The concept of "lever" is widely used in various natural sciences and denotes a device or mechanism that allows you to increase the impact on some object. In financial management, a constant component in the total costs of an enterprise acts as such a mechanism. Under the operating leverage (OL) understand the share of fixed costs in the costs incurred by the company in the course of its core business. This indicator characterizes the dependence of the enterprise on fixed costs in the cost of production and is an important characteristic of its business risk.

The operating leverage effect is manifested in the fact that any change in sales revenue always generates a stronger change in profit.

The effect of operating leverage is that any change in sales revenue results in an even larger change in profit. The action of this effect is associated with the disproportionate impact of conditionally fixed and conditionally variable costs on the financial result when the volume of production and sales changes.

The higher the share of semi-fixed costs in the cost of production, the stronger the impact of operating leverage.

The strength of the operating leverage is calculated as the ratio of marginal profit to profit from sales.

1. The effect of operating leverage

In modern conditions, Russian enterprises issues of mass regulation and profit dynamics come to one of the first places in the management of financial resources. The solution of these issues is included in the scope of operational (production) financial management.

The basis of financial management is financial economic analysis, within which the analysis of the cost structure comes to the fore.

It is known that entrepreneurial activity is associated with many factors that affect its result. All of them can be divided into two groups. The first group of factors is associated with profit maximization through supply and demand, pricing policy, product profitability, and its competitiveness. Another group of factors is associated with the identification of critical indicators in terms of the volume of products sold, the best combination of marginal revenue and marginal costs, with the division of costs into variable and fixed.

Variable costs that change with changes in the volume of output include raw materials and materials, fuel and energy for technological purposes, purchased products and semi-finished products, the basic wages of the main production workers, the development of new types of products, etc. Fixed (company-wide) costs - depreciation deductions, rent, salaries of the administrative and managerial apparatus, interest on loans, travel expenses, advertising expenses, etc.

The analysis of production costs allows you to determine their impact on the amount of profit from sales, but if you go deeper into these problems, it turns out the following:

such a division helps to solve the problem of increasing the mass of profit due to the relative reduction of certain costs;

allows you to search for the most optimal combination of variable and fixed costs, providing an increase in profits;

allows you to judge the cost recovery and financial stability in the event of a deterioration in the economic situation.

The following indicators can serve as a criterion for choosing the most profitable products:

gross margin per unit of production;

the share of gross margin in the price of a unit of production;

gross margin per unit of limited factor.
Considering the behavior of variable and fixed costs, one should analyze the composition and structure of costs per unit of output in a certain period of time and with a certain number of sales. This is how the behavior of variable and fixed costs is characterized when the volume of production (sales) changes (Table 1).

Table 1. Behavior of variable and fixed costs when changing the volume of production (sales)

production (sales)	variable costs		fixed costs
	total	per unit products	total	per unit of production
Grows Falls	Increase Decrease	Immutable Immutable	Immutable Immutable	Decrease Increase

The cost structure is not so much a quantitative relationship as a qualitative one. Nevertheless, the influence of the dynamics of variable and fixed costs on the formation of financial results with a change in production volume is very significant. It is with the cost structure that operating leverage is closely related.

The effect of operating leverage is that any change in sales revenue always generates a larger change.arrived.

2. Calculation of the effect of operating leverage

To calculate the effect or force of the lever, use whole line indicators. This requires the separation of costs into variables and constants with the help of an intermediate result. This value is usually called the gross margin, the amount of coverage, the contribution.

These metrics include:

gross margin = profit from sales + fixed costs;

contribution (coverage amount) = sales proceeds - variables
expenses;

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

If we interpret the effect of the operating leverage as a change in the gross margin, then its calculation will allow us to answer the question of how much the profit changes from an increase in the volume (production, sales) of products.

Revenue changes, leverage changes. For example, if the leverage is 8.5, and revenue growth is planned to be 3%, then profit will increase by: 8.5 x 3% = 25.5%. If revenue falls by 10 %, then the profit is reduced by: 8.5 x 10 % = 85 %.

However, with each increase in revenue from the sale of the lever, the leverage changes, and profits grow.

Let's move on to the next indicator that emerges from operational analysis - profitability threshold(or break-even point).

The threshold of profitability is calculated as the ratio of fixed costs to the gross margin ratio.

K Gross Margin = Gross Margin / Sales Revenue

profitability threshold = fixed costs / K gross margin

The next indicator is margin of financial strength.

Margin of financial strength \u003d sales proceeds - profitability threshold.

The size of financial strength shows that the company has a margin financial stability and hence the profit. But the lower

the difference between revenue and the threshold of profitability, the greater the risk of incurring losses. So:

the strength of the impact of the operating lever depends on the relative magnitude of fixed costs;

the strength of the operating leverage is directly related to the growth in sales volume,

the force of the impact of the operating lever is the higher, the closer the enterprise is to the threshold of profitability;

the strength of the impact of the operating lever depends on the level of capital intensity;

the strength of the impact of operating leverage is stronger, the lower the profit and the higher the fixed costs.

Example For calculation.

/. Initial data.

Proceeds from the sale of products - 10,000 thousand rubles.

Variable costs - 8300 thousand rubles.

Fixed costs - 1500 thousand rubles.

Profit - 200 thousand rubles.

//. Calculation.

1. Calculate the force of the operating leverage.

Coverage amount = 1500 thousand rubles. + 200 thousand rubles. = 1,700 thousand rubles.

Operating lever force = 1700/200 = 8.5 times.

2. Assume that next year sales growth is predicted by 12 %. We can calculate how much
profit will increase.

10000 * 112% / 100 = 11,200 thousand rubles

8300 * 112% / 100 = 9296 thousand rubles.

11 200 - 9296 = 1904 thousand rubles

1904 - 1500 = 404 thousand rubles

1500 + 404 ,
Lever force = 1500+404 / 404 = 4.7 times.

From here, profit increases by 102%:

404-200 = 204; 204 * 100 / 200 = 102%.

Let's define the profitability threshold for this example. For these purposes, the gross margin ratio should be calculated. It is calculated as the ratio of gross margin to sales revenue:

1904 / 11200 = 0,17.

Knowing the gross margin ratio - 0.17, we consider the profitability threshold.

Profitability threshold: 1500 / 0.17 = 8823.5 rubles.

Consider how sales revenue and the combination of variable and fixed costs affect leverage.

Table 2. Options for combining variable and fixed costs

Indicators	I quarter	11 quarter	111 quarter	IV quarter
Revenues from sales
variable costs d "PTPPTE 1
Gross margin
Permanent
Force
lever		32000/2000 = 16	40000/10000 = 4	60000/30000 = 2

From this table, it is especially noticeable that the effect of operating leverage is especially high when it is close to the profitability threshold.

Analysis of the cost structure allows you to choose a strategy of behavior in the market. There is a rule when choosing profitable assortment policy options - the 50:50 rule.

Cost management in connection with the use of the effect of operating leverage allows you to quickly and comprehensively approach the use of enterprise finances.

All types of products are divided into two groups depending on the share of variable costs, if it is more than 50%, then it is more profitable for these types of products to work on reducing costs. If the share of variable costs is less than 50%, then it is better for the company to increase sales volumes - this will give more gross margin.

Having mastered the cost management system, the company receives the following benefits:

the ability to increase the competitiveness of manufactured products (services) by reducing costs and increasing profitability;

to develop a flexible pricing policy, on its basis to increase turnover and oust competitors;

save the material and financial resources of the enterprise, obtain additional working capital;

evaluate the effectiveness of the activities of the company's divisions, staff motivation.

Cost management methods are an integral part of the financial management system of an enterprise. These include planning financial and material flows, sales and purchases, budgeting departments, the formation of a flexible pricing policy.

At the same time, the effect of the operating lever can be controlled precisely on the basis of taking into account the dependence of the force of the lever on the amount of fixed costs: the greater the fixed costs, the stronger the operating lever and vice versa. But with a jump in fixed costs, dictated by the interests of further increasing revenue or other circumstances, the company has to pass a new threshold of profitability.

And then it must be taken into account:

1) when planning the level of costs, both variable and fixed;

2) when developing the marketing policy of the enterprise. With unfavorable forecasts for the dynamics of sales proceeds, fixed costs should not be inflated, since the loss of profit may be more significant;

3) with a long-term increase in demand for goods and
services. It is possible to forego the fixed cost austerity regime, because this will give a significant increase in profits.

Not only does an increased share of fixed costs increase operating leverage, it reduces the business opportunities of the enterprise, which also affects the loss of profit.

Volatility in demand and prices for finished products, as well as yen for raw materials and fuel does not always allow to ensure the volume and dynamics of profit - all this increases entrepreneurial risk. This is especially dangerous for small firms with narrow specialization. Primary task financial manager in such a situation - a decrease in the strength of the operating lever.

An in-depth operational analysis of total fixed costs can help here. The value of fixed costs for direct goods can be calculated quite easily and identify opportunities to reduce them. It is more difficult with indirect fixed costs (management salaries, accounting costs, rent, office maintenance, depreciation for administrative buildings, etc.). But even here there are opportunities to reduce them.

An in-depth operational analysis reveals which products are profitable and which are not.

In world practice, certain strategies are being developed to achieve superiority in the competition.

One such strategy is to achieve "cost leadership". This strategy provides the maximum cost reduction per unit of output. Naturally, such a strategy is based on:

on skills and resources;

on the structure of the company;

on culture and values.

Cost reduction requires knowledge and experience in controlling cost sources. Raw materials, components, fuel, costs for wages, maintenance of administrative structures, etc. - all of them should be clearly taken into account and controlled.

For example, if for production process If expensive equipment is needed, then one of the conditions will be planning and evaluating its effectiveness in production. If wage costs are significant, then it is necessary to train staff, implement systems of remuneration for the result of labor control the work process. In an effort to reduce the costs of the enterprise, we must not forget about the quality of products, and the quality must correspond to the average level in the industry. The nature of the manufactured products largely determines the structure of the company necessary to reduce costs. Large companies mass-produced companies must carefully develop a highly specialized production structure. It includes: production planning, definition official duties, rationing, quality control, cost control, disciplinary procedures, etc. In different organizations, the set of elements may vary.

As for the culture and values ​​that any company should be guided by, the main factor here is labor productivity. The management style can be authoritarian. Verification, control, compliance with norms, motivation become values ​​for the enterprise. A combination of firmness and responsibility can increase efficiency and quality without coercion or punishment.

High mechanization and automation of the labor process is very helpful in this respect. In this case, constant accounting and control are not needed, since the productivity is set when programming the machines and the technological process. Automation of production makes it possible to change the structure of the company, its culture towards greater freedom, informality.

When the cost leader has fully automated his production process, then its further improvement is achieved by a diverse set of organizational parameters. Qualified engineers, quality control systems specialists work together to solve problems h implementation of innovations.

Conclusion

Thus, the effect of operating leverage can be defined as the ratio of contribution margin (the difference between output and variable costs) to profit. The value of this indicator depends on the base level of production volume, from which the countdown is based. In particular, the indicator has the highest values ​​in cases where the change in production volume occurs from levels slightly exceeding the critical sales volume. Then even a slight change in the volume of production leads to a significant relative change in profit. The reason for this situation is that the underlying value of profit is close to zero. Spatial comparisons of operating leverage effect levels are possible only for organizations with the same base level of output. A higher value of this indicator is usually characteristic of organizations with a higher level of technical equipment. More precisely, the higher the level of semi-fixed costs in relation to the level of variable costs, the greater the effect of operating leverage. Thus, an organization (enterprise), which improves its technical level in order to reduce specific variable costs, simultaneously increases the effect of operating leverage.

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The concept of operating leverage is closely related to the cost structure of a company. 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 a change in the organization's profit depending on the change in the volume of sales, as well as determine the break-even point. A necessary condition for the application of the mechanism of operating leverage is the use of a marginal method based on the division of costs into fixed and variable. The lower the share 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.

As already mentioned, there are two types of costs in the enterprise: variables and constants. Their structure as a whole, and in particular the level of fixed costs, in the total revenue of an enterprise or in revenue per unit of production can significantly affect the trend in profits or costs. This is due to the fact that each additional unit of production brings some additional profitability, which goes to cover fixed costs, and depending on the ratio of fixed and variable costs in the company's cost structure, the total increase in revenue from an additional unit of goods can be expressed in a significant sharp change in profit. As soon as the break-even point is reached, there is profit, which begins to grow faster than sales.

The operating lever is a tool for defining and analyzing this dependence. In other words, it is designed to establish the impact of profit on the change in sales volume. The essence of its action lies in the fact that with the growth of revenue there is a higher growth rate of profit, but this higher growth rate is limited by the ratio of fixed and variable costs. The lower the proportion of fixed costs, the lower this constraint will be.

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

Price operating leverage(Pc) is calculated by the formula:

Rts = V / P

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

Given that V \u003d P + Zper + Zpost, the formula for calculating the price operating leverage can be written as:

Rts \u003d (P + Zper + Zpost) / P \u003d 1 + Zper / P + Zpost / P

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

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

Rn \u003d (V-Zper) / P \u003d (P + Zpost) / P \u003d 1 + Zpost / P

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

Operating leverage is not measured as a percentage, as it is the ratio of marginal income to profit from sales. 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 that this enterprise is engaged in, since the ratio of fixed and variable costs in the overall cost structure is a reflection not only of the characteristics of this enterprise and its accounting policy, but also of industry-specific characteristics of activity.

However, it is impossible to consider that a high share of fixed costs in the cost structure of an enterprise is a negative factor, as well as to absolutize the value of marginal income. An increase in production leverage may indicate an increase in the production capacity of the 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 breakeven level. In other words, an enterprise with a higher level of production leverage is more risky.

As the operating lever shows momentum operating profit in response to a change in the company's revenue, and financial leverage characterizes the change in profit before tax after paying interest on loans and borrowings in response to a change in operating profit, the total leverage gives an idea of ​​how much percentage change in profit before taxes after paying interest when revenue changes by 1%.

Thus, small operating lever can be strengthened by attracting borrowed capital. A high operating lever, on the contrary, can be leveled with a low financial leverage. With the help of these powerful tools - operational and financial leverage - an enterprise can achieve the desired return on invested capital at a controlled level of risk.

32 Analysis of operating leverage.

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

Operating leverage shows its effect in the fact that any change in sales generates a stronger change in profits. At the same time, the strength of the operating leverage (SOP) reflects the degree of entrepreneurial risk: the greater the value of the strength of the operating leverage, the higher the entrepreneurial risk.

Since the growth in sales revenue causes a corresponding increase in variable costs with the consumption of more raw materials, materials, labor production costs etc., then a part of the additionally received revenue will become a source of their coverage. Another part of the current costs, the so-called fixed costs (not related to the functional dependence on the volume of production), in the context of expanding the scale of the business, may also increase. This growth will be recognized as justified only if the sales proceeds grow faster. Restraining the growth of fixed costs while increasing sales of products will contribute to the generation of additional profits, as the effect of operating leverage will manifest itself.

The following formulas are used to calculate the operating leverage strength index:

SOS = Profit Margin / Sales Profit = (Sales Revenue - Variable Expenditure)/ Profit = (Profit + Post Expenditure)/Profit = Psot. expenses/profit +1