In its 2009 annual report, the Coca-Cola Company reported sales of $30.99 billio
ID: 2682439 • Letter: I
Question
In its 2009 annual report, the Coca-Cola Company reported sales of $30.99 billion for 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 operating income was $8.04 billion in 2009 and %6.96 billion in 2008. Based on these figures, which company had higher operating leverage?Explanation / Answer
degree of operating leverage is: DOL = % change in EBIT / % change in Sales SO for Coca-Cola, DOL = (8.23-8.45)/(30.99-31.94) = 23.16% For Pepsi, DOL = (8.04-6.96)/(43.23 -43.25) = -5400% So Coca Cola has higher OL