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In its 2009 annual report, the Coca-Cola company reported sales of 30.99 billion for the fiscal...

Question:

In its 2009 annual report, the Coca-Cola company reported sales of 30.99 billion for the fiscal year 2009 and 31.94 billion for fiscal year 2008. The company also reported operating income (roughly equivalent to EBIT) of 8.23 billion in 2009 and 8.45 billion in 2008. Meanwhile, arch rival PepsiCo, Inc. reported sales of 43.23 billion in 2009 and 43.25 billion in 2008. PepsiCo's operating income was 8.04 billion in 2009 and 6.96 billion in 2008.

Based on these figures, which company had higher operating leverage?

Operating Leverage:

The leverage associated with investment activities is called as operating leverage. It is caused due to fixed operating expenses in the company. Operating leverage may be defined as the company's ability to use fixed operating costs to magnify the effects of changes in sales on its earnings before interest and taxes.Too high operating leverage is not good, it may be high risky.

Answer and Explanation:

Coca Cola:

20082009% change
Sales31.9430.992.97%
EBIT8.458.232.60%

{eq}Operating Leverage= \frac{\% change\ in\ profits}{\% change\ in\...

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Operating Leverage: Definition, Calculation & Examples

from Financial Accounting: Homework Help Resource

Chapter 1 / Lesson 12
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