Degree of Financial Leverage

Degree of financial leverage, abbreviated as DFL, is used to measure the sensitivity of a corporations earnings per share to its equity capital.

 

degree of financial leverage Formula

\(\large{ DFL =  \frac{ EPS_{pc} }{ EBIT_{pc} }   }\)

Symbol

\(\large{ DFL }\) = degree of financial leverage

\(\large{ EBIT_{pc} }\) = percent change in EBIT

\(\large{ EPS_{pc} }\) = percent change in EPS

\(\large{ EBIT }\) = earnings before interest and taxes (operating profit)

\(\large{ EPS }\) = earnings per share