Methods Used in Assessing the Sensitivity of Profit

The use of econometric methods is extremely useful in assessing the sensitivity of profit. In the case of determining the break-even point for non-linear dependency and the break-even point under conditions of uncertainty, the average value of the financial result is a function of average sales volume, while the standard deviation of earnings depends on the standard deviation of sales. To determine the probability of achieving the break-even point, and the probability of realizing a profit at a certain level, it is necessary to standardize the financial result. In the case of determining the degree of operational and financial leverage, in the realm of dynamic indicators rating changes in sales revenue, operating profit, gross profit, net income, EPS and ROE, are used. In the case of static rates of leverage, the value of quotients are determined before and after, taking into account operational and financial risks. In assessing the positive effects of financial leverage, it is important - the effective cost of debt is lower Return on Assets and Earning before Interest and Tax levels above the limit of the operational EBIT * defined as the result of interest-rate debt times total capital. It is very important to use leverage in management and planning. Knowing the degree o financial and operational leverage, as well as planning an increase or decrease in production, we can calculate the percentage increases and decreases in individual results and the changes in the rate of return on equity.