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Degree of Total Leverage Calculator

Enter the degree of operating leverage and the degree of financial leverage to get the DTL.

Result

2.70

How it is calculated

This tool does one multiplication: DTL = DOL × DFL. You supply both degrees yourself; it does not derive them from financial statements. DOL is the degree of operating leverage, commonly contribution margin / EBIT, and DFL is the degree of financial leverage, commonly EBIT / (EBIT − interest). Both are plain multiples with no unit. The product is shown to two decimals. The tool does not check the inputs, so a negative or zero figure is multiplied as typed. A DTL of 2.7 means that a 1% change in sales moves earnings per share by about 2.7% in the same direction, assuming the cost structure stays the same.

Worked example

A company has a degree of operating leverage of 1.8 and a degree of financial leverage of 1.5. Multiply them: 1.8 × 1.5 = 2.7. The tool shows a degree of total leverage of 2.70. If sales fall by 10%, earnings per share would be expected to fall by about 27%; if sales rise by 10%, they would rise by about 27%.

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Common mistakes

  • Adding DOL and DFL instead of multiplying; 1.8 + 1.5 = 3.3 understates the combined effect, which is 2.7 here only because the effects compound.
  • Entering DOL or DFL as a percentage (180 or 150); they are multiples, entered as 1.8 and 1.5.
  • Using DOL and DFL calculated at different sales levels or in different years; both must come from the same base point.
  • Expecting a linear forecast far from the base: leverage ratios hold only for small changes while fixed costs and interest stay unchanged.

About this calculator

Degree of total leverage combines both types of business risk into one number: DTL = DOL × DFL, the degree of operating leverage (how much operating income swings with sales, driven by fixed operating costs) multiplied by the degree of financial leverage (how much that swings again by the time it reaches earnings per share, driven by fixed interest expense).

A DTL of, say, 3 means a 10% change in sales translates into roughly a 30% change in EPS — CFOs and equity analysts use it to gauge how much earnings volatility a company's cost and debt structure amplifies, which matters directly for risk assessment when a business faces a sales downturn.

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