Aswath Damodaran 134
Reading Disney’s Operating Leverage
! Operating Leverage = % Change in EBIT/ % Change in Sales
= 10. 09 % / 15. 83 % = 0. 64
! This is lower than the operating leverage for other entertainment firms, which
we computed to be 1. 12. This would suggest that Disney has lower fixed costs
than its competitors.
! The acquisition of Capital Cities by Disney in 1996 may be skewing the
operating leverage. Looking at the changes since then:
Operating Leverage 1996 - 03 = 4. 42 %/ 11. 73 % = 0. 38
Looks like Disney’s operating leverage has decreased since 1996.
The operating leverage number makes sense only when compared to industry
averages or historical averages. It is the relative operating leverage that affects
betas.
