Degree Of Operating Leverage - DOL

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DEFINITION of 'Degree Of Operating Leverage - DOL'

A type of leverage ratio summarizing the effect a particular amount of operating leverage has on a company's earnings before interest and taxes (EBIT). Operating leverage involves using a large proportion of fixed costs to variable costs in the operations of the firm. The higher the degree of operating leverage, the more volatile the EBIT figure will be relative to a given change in sales, all other things remaining the same. The formula is as follows:

 

Degree Of Operating Leverage (DOL)

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BREAKING DOWN 'Degree Of Operating Leverage - DOL'

This ratio is useful as it helps the user in determining the effects that a given level of operating leverage has on the earnings potential of the firm. This ratio can also be used to help the firm determine the most appropriate level of operating leverage in order to maximize the company's EBIT.

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RELATED FAQS
  1. What is the relationship between degree of operating leverage and profits?

    The degree of operating leverage directly reflects a company's cost structure, and cost structure is a significant variable ... Read Full Answer >>
  2. How can I calculate degree of operating leverage on Excel?

    The degree of operating leverage measures how a given percent change in sales will affect a company's earnings before interest ... Read Full Answer >>
  3. What does a high degree of operating leverage indicate?

    The degree of operating leverage measures the percent change of a company's earnings before interest and taxes relative to ... Read Full Answer >>
  4. What is the difference between degree of operating leverage and degree of financial ...

    The degree of operating leverage and the degree of financial leverage are two indicators used in fundamental analysis to ... Read Full Answer >>
  5. How do I calculate the degree of operating leverage?

    The degree of operating leverage is a measure used to evaluate how a company's operating income changes with respect to a ... Read Full Answer >>
  6. Besides operating leverage, what are other important forms of leverage for businesses?

    In addition to consideration of a company's operational leverage, other leverage metrics examined by market analysts include ... Read Full Answer >>
  7. What are the risks of having both high operating leverage and high financial leverage?

    In finance, the term leverage arises often. Both investors and companies employ leverage to generate greater returns on their ... Read Full Answer >>

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