The degree of operating leverage (DOL) is defined as the percentage change in EBIT resulting from a 1 percent change in sales.

a. The degree of operating leverage approaches a maximum as the firm comes closer to operating at its breakeven level of output.

b. All other things being equal, the higher a firm’s DOL, the greater is its business risk.

c. Business risk, the inherent variability of a firm’s EBIT, is also influenced by the variability of sales and operating costs over time. P-9687