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:

Return On Equity

A financial ratio indicating the profitability of a firm relative to shareholder equity, showing how effectively equity is used to generate profits.

Gross Margin

The difference between sales revenue and the cost of goods sold, indicating the profitability of a product or service.

Net Profit Margin

A financial metric expressing the percentage of revenue that remains as profit after all operating and non-operating expenses have been deducted.

Gross Margin

The difference between revenue and cost of goods sold, which serves as a measure of a company’s manufacturing and distribution efficiency.