The higher the Degree of Financial Leverage (DFL), the greater the impact of a change in operating income on a company's earnings per share (EPS). This means that with a high DFL, a small change in operating income can lead to a larger change in EPS, indicating that EPS exceeds operating income by a greater margin when DFL is high.

Solved

The Higher the DFL

Question 67

Multiple Choice

The higher the DFL

A) the greater a company's earnings per share exceeds its operating income.
B) the greater a company's operating income exceeds its earnings per share.
C) the less the cost of financing to the company.
D) none of the above.

Correct Answer: