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Evening John,
I’ve just been looking at examples of operating gearing and using the OT notes (which are awesome by the way) a slight discrepancy has arisen between OT and Kaplan.
Operating gearing in OT examples is fixed cost / variable cost as an example yet Kaplan have used contribution / PBIT.
Any chance you explain please?
Thanks
As I explain in the free lecture that goes with the notes, there is no standard measure of operating gearing, and so either measure is valid.
In Section A it now appears you are best to use contribution/PBIT unless told differently, but in section B is doesn’t matter at all – it is the discussion about it that matters in Section B. (The examiner himself has used different measures in his own answers)
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