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)

INVESTOPEDIA EXPLAINS '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. How can I calculate degree of operating leverage on Excel?

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

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  4. How do I calculate the degree of operating leverage?

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  5. Besides operating leverage, what are other important forms of leverage for businesses?

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