Question 1

Using the most recent three years of available data, compute Wal-Mart's and Target's degree of operating leverage. You will have to use the formula, percentage change in pretax income divided by percentage change in revenues. Show your work.

Question 2

Using the last three years of available data, compute Wal-Mart's and Target's degree of financial leverage. You will have to use the formula, percentage change in net income divided by percentage change in pretax income (EBIT). Show your work.

Question 3

With each company, multiply the degree of financial leverage times the degree of operating leverage to determine the degree of combined leverage for the two periods.

Question 4

Compare the leverage ratios. Did the degrees of leverage stay the same? Explain the differences between the two periods.