Briefly Explain the Difference Between the Degree of Pretax Cash

question 90

Essay

Briefly explain the difference between the degree of pretax cash flow operating leverage and the degree of accounting operating leverage. Also explain why someone might be interested in one or the other.

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Definitions:

Straight-Line Method

The straight-line method is a way of calculating depreciation by evenly spreading the cost of an asset over its useful life.

R&D Costs

Expenditures related to the research and development of company’s products or services.

Impairment Losses

Financial losses recognized when the carrying amount of an asset exceeds its recoverable amount.

GAAP

Generally Accepted Accounting Principles, a standard framework of guidelines for financial accounting used in any given jurisdiction, notably the U.S.