Nobody downloaded yet

Estimate the five operating expenses for each of the past three fiscal years, and evaluate what operating leverage, if any, was applied each year - Essay Example

Comments (0) Cite this document
The objective of analyzing operating expenses and evaluating whether an operating leverage was applied in a company is to assess the "impact of any change in revenue on profit or cash flow" (Buccino and Mc Kinley 1997). The understanding is important since it assist the company by providing guidance on the company's cash position as well as future strategies for managing working capital…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER94.5% of users find it useful
Estimate the five operating expenses for each of the past three fiscal years, and evaluate what operating leverage, if any, was applied each year
Read TextPreview

Extract of sample "Estimate the five operating expenses for each of the past three fiscal years, and evaluate what operating leverage, if any, was applied each year"

Download file to see previous pages According to both financial statements the five costs are Cost of Revenue, Research and Development, Selling General and Administrative Expenses, Non-Recurring and Others. For the sake of simplicity, Cost of Revenue and Selling, General and Administration Expenses would be regarded as Variable Cost and the other expenditure as Fixed Cost.
From the Income Statement Extract for 2003 (Fig 2), it is clear that PFIZER operated with a higher degree of operating leverage than GlaxoSmithKline. This is evident in the company's fixed cost percentage as PFIZER's fixed cost position is 2% higher that its competitor. The fact that PFIZER has a substantial amounts of capital tied up in its fixed assets and in particular in Research and Development Expenditure, would account for its higher operating leverage. It should be of no surprise therefore, that PFIZER's Research and Development accounts for over 50% of its total fixed cost. GlaxoSmithKline may have been a little more conservative since its Research and Development Expenditure spans only 5% of its total fixed cost.
The strategy therefore would be for PFIZER to reduce its fixed cost percentage and thus enable itself to manage its risks. It has successfully done so in December 2004 (Fig 3) and as a result its operations have expanded by 13%. GlaxoSmithKline, on the other hand, operating income expanded by only 3% despite the reduction of its operating leverage. This is owing to the fact that its revenue of $39 Billion only increased by 3%.

Fig 4

According to Fig 4, the Operating Income of GlaxoSmithKline has improved by an additional 4% where as PFIZER fell by 5%. PFIZER operating leverage has increased again and hence would account for the fall in Operating Income by $3 Billion. It was clear that GlaxoSmithKline managed its operating leverage better and hence reduces its risk.


The question, which may arise, is whether PFIZER is in a better situation than GlaxoSmithKline The truth is "leverage is neither good or bad"(Schmedt May 1998). Each company must assess the amount of risk it is willing to take while striving to achieve its corporate objectives. It is important to understand the company's cost structure to enable management to make effective decisions so that it can compete effectively and achieve the competitive advantage it so desires.


Fred Schmedts, The concept of Operating Leverage : The Samuel Roberts Noble Foundation

Glaxosmithkline PLC Financial Statements December 2003 to December 2005 - Yahoo Finance

PFIZER Inc Financial Statements December 2003 to December 2005 - Yahoo Finance

Buccino, Gerald P. and Kraig S. McKinley, "The Importance of Operating Leverage in a Turnaround," Secure Lender (September / October 1997), ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Estimate the five operating expenses for each of the past three fiscal Essay”, n.d.)
Estimate the five operating expenses for each of the past three fiscal Essay. Retrieved from
(Estimate the Five Operating Expenses for Each of the past Three Fiscal Essay)
Estimate the Five Operating Expenses for Each of the past Three Fiscal Essay.
“Estimate the Five Operating Expenses for Each of the past Three Fiscal Essay”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Estimate the five operating expenses for each of the past three fiscal years, and evaluate what operating leverage, if any, was applied each year

Operating system

...between the applications which are not able to communicate directly with the computer hardware. Advantages of an operating system Multitasking and time sharing One of the greatest advantages of an operating system is the ability to multitask. Multitasking refers to the fact that the processor will be handling more than one process concurrently. This is done through time sharing and the operating system in any computing environment is very useful in determining which functions will be given which computing resources. Before the modern operating system architecture was developed in the 1950s and the early 1960s, computer processors only processed one...
4 Pages(1000 words)Essay

Three topics for each page

...the leader is unable to bring about a consensus within his own party. Thus it still remains a wait and watch situation even though a shutdown is more likely expected by several critics and top bureaucrats of the government. Whether any compromise will be made in the last minute or the shutdown will ensue harming the careers of several thousands of people will have to be seen. The current trends in applying for a job Networking is here to stay. While job seekers in the past relied on paper resumes and attended interviews in person the current trend has seen sweeping changes in applying for new jobs. Previously employers relied on emails to look at the online portfolios of...
3 Pages(750 words)Article

Operating System

...of the operating system to any computing device can never be overstated. It should be noted that computers cannot function and will become useless without it. The operating systems in our modern times function in order to accomplish three major goals which include hiding the details of the hardware through the establishment of abstraction, to assign the resources to specific processes, and to provide the user with an interface which is simple and easy to use for his benefits (Muhammad 2). Because of their design and task in computing devices, OS have been named as resource manager where the primary resource is the computer hardware including processors, storage,...
4 Pages(1000 words)Essay

Operating strategies step. Each successively high level of management in turn makes its own estimation, integrating the input from each of the immediately preceding level and in this way forecasting run. This process often highly interacted and most commonly used. Zero Based Forecasting: This technique uses the organization's present staffing level as the starting point of estimating future needs. The key to zero based forecasting is the requirement of justifying quantitatively or otherwise the filling of any vacant position or the creation of any new position or job. ...
10 Pages(2500 words)Assignment

Operating Systems General Motors wing of research, referred to as GMNAA I/O. In the mainframe era, operating systems such as SCOPE were in the market as early as 1960s, as developed by Control Data Corporation. Other developments later experienced for the computer at that age include PLATO, EXEC, MCP, GECOS, Multics and TOPs among others. Later, advancements in hardware capabilities introduced higher definition operating systems (Bacon, 1989). UNIX was designed and developed in from 1970 by Ken Thomson and Dennis Ritchie and in five years’ time, it was already in the market. A wide range of versions was designed for different computer types such as IBM PC making it a successful...
3 Pages(750 words)Term Paper

Operating Systems

...different executions. Each execution is termed as a separate process (Tanenbaum, 2009, p. 84). E.g. MS Word is a program. When we open several files in Word, each file would form a separate process. In this case, the text section would be common, but each process would have its own program counter, data, stack and heap. 2. Process State When a process executes, it changes its state. A state depicts the current activity of the process (Halder & Aravind, 2010, p. 96; Silberschatz et. al, 2005). There are five states a process can be in: New: Process is being created Running: Process is executing its instructions Waiting: Process is waiting for an...
6 Pages(1500 words)Research Paper

Operating system

...Your full February 18, Operating System An operating system (OS) is the manager software of a computer. What it manages includes the computer’s memory, processes running on it, software installed in it, and all hardware attached to it. With the help of a Graphical User Interface (GUI), an OS becomes a link between the user and the computer, because the user does not know the computer language of ones and zeros, and the operating system takes the responsibility of taking user’s commands and passing it on to the related software and hardware. The user uses the GUI of the OS to give commands through mouse pointer, icons and menus. When we turn on the computer, it boots itself, which means...
1 Pages(250 words)Essay

Operating Segments

...differently from interests expense for each segment. This is aimed at enabling the assessment of the segments performance and determines the level of resources to be allocated to each segment. The IAS 14 was not in need of the disclosure of the expense and income interests. The IFRS requires an entity to disclose information on its entire products, services, major customers as well as its operating geographical area. The requirement is applied across the board of an entities organization regardless of whether the information is part of the disclosure on the segments. While the IAS 14 only required the publication of secondary information...
6 Pages(1500 words)Essay

Operating Systems

...Operating Systems The two sections that important for this discussion are the Linux I/O and Windows I/O. The Linux I/O service mainly offers the tools used for program profiling and monitoring the performance of the computer CPU. Disk scheduling in Linux allows the execution of many program processes at the same time. The Linux Page Cache aids in fast data access and transmission. This is because during an I/O operation, such as disk read information, the operating system kernel checks for data in the page cache to facilitate fast reading of the data. The advancements in the Linux I/O services is the optimization of disk scheduling through the use of multilevel queues and priority...
1 Pages(250 words)Essay

Operating System

...are to be simulated in the software rather than the hardware, which is the case in visualization that makes visualization faster than simulation. The simulation and visualization program investigates advanced computational and experimental techniques to understand and predict physical phenomena, as well as unique image rendering methods to enhance the interpretation of complex systems and data sets. This program develops and advances simulation and visualization capabilities and applies them in a societal context. One goal is to enable scenarios for products or processes to be altered and tested in a virtual environment before any physical models are created. 11) Describe some requirements and goals to...
7 Pages(1750 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Estimate the five operating expenses for each of the past three fiscal years, and evaluate what operating leverage, if any, was applied each year for FREE!

Contact Us