Assume that a firm's degree of financial leverage (DFL) is 1.2. If sales this year increase by 20 percent, the firm expects a 60 percent increase in earnings per share (EPS). What is the firm's degree of operating leverage of the firm?

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Quizplus · Accepted Answer

The degree of operating leverage (DOL) can be calculated using the formula: DOL = (Percentage change in EPS / Percentage change in sales) / DFL. Here, DOL = (60% / 20%) / 1.2 = 2.5.

Assume That a Firm's Degree of Financial Leverage (DFL) Is