Meet Nathan Ronen, CFA, Lead Instructor and Co-Founder of Chalk & Board. In this video, Nathan provides a free CFA study lesson on different leverage measures (Measures of Leverage) that have historically appeared in the CFA Level 1 and sometimes CFA Level 2 curriculum. Leverage is also called "gearing" in some countries. Nathan describes the difference between financial leverage and operating leverage; how to calculate and determine the components of the degree of operating leverage, financial leverage and total leverage; how to calculate the breakeven sales quantity to cover all fixed costs; and how to calculate the breakeven sales quantity to cover operating fixed costs (NOT financing fixed costs) by using the Contribution Margin.
1:28 Definition of Operating Leverage (percentage of firm's total costs that are fixed as opposed to variable, often calculated as Assets/Equity as given in the DuPont formula) versus Financial Leverage (debt component of a firm's capital structure)
4:35 How to calculate and determine the degree of Operating Leverage, Financial Leverage and Total Leverage
15:19 The effect of Financial Leverage on a company's Net Income (NI) and its Return on Equity (ROE)
21:58 How to calculate a company's "breakeven quantity of sales" (covering all fixed costs including fixed operating costs and fixed financial costs) and its "operating breakeven quantity of sales" (so that EBIT = 0), by using the Contribution Margin
25:07 Example calculation of a firm's breakeven sales quantity, degree of operating leverage, degree of financial leverage, and degree of total leverage
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