Degree Of Operating Leverage (DOL)
A type of leverage ratio summarizing the effect a particular amount of operating leverage has on a company's earnings before interest and taxes (EBIT). Operating leverage involves using a large proportion of fixed costs to variable costs in the operations of the firm. The higher the degree of operating leverage, the more volatile the EBIT figure will be relative to a given change in sales, all other things remaining the same. The formula is as follows:
Investopedia Says:
This ratio is useful as it helps the user in determining the effects that a given level of operating leverage has on the earnings potential of the firm. This ratio can also be used to help the firm determine the most appropriate level of operating leverage in order to maximize the company's EBIT. Related Terms:
Degree Of Combined Leverage - DCL
Earnings
Earnings Before Interest & Tax - EBIT
Earnings Per Share - EPS
Leverage
Leverage Ratio
Net Income - NI
Net Operating Income - NOI
Operating Leverage |