What is meant by degree of financial leverage Degree of operational leverage and degree of combined leverage

Koyel · 22 Aug 2026

Operational leverage:-Measures the sensitivity of Earnings Before Interest and Taxes (EBIT) to changes in sales revenue. It indicates business risk arising from fixed operating costs. Degree of Financial Leverage (DFL): Measures the sensitivity of Earnings Per Share (EPS) or Earnings Before Tax (EBT) to changes in EBIT. It indicates financial risk arising from fixed financing costs like interest and preference dividends. Degree of Combined Leverage (DCL): Measures the overall sensitivity of EPS to changes in sales revenue by combining both operating and financial risks.