Formula Interpretation Degree of operating leverage (DOL) An index for a of sales that measures the effect of a change in sales (S) on the firm's operating income (EBIT). Alternatively, it is an indicator of the riskiness (variability) of a firm's EBIT to the use of fixed costs (F) in the firm's cost structure. Degree of financial leverage (DFL) An index for a specific range of sales that measures the effect of a change in EBIT on a firm's earnings per share (EPS). At a constant level of sales, the DFL value will vary with a change in the amount of interest expense (1) incurred. This implies that the DFL is an indicator of a firm's risk Degree of total leverage (DTL) An index of the firm's total risk resulting from its use of operating and financial leverage. Stated differently, it is an indicator of the consequences for the firm's EPS for its use of operating and financing costs. Grade it Now Save & Continue Continue without saving