Degree of Operating Leverage

Description

In finance, leverage is a general term for any technique to multiply gains and losses. Most often it involves buying more of an asset by using borrowed funds, with the belief that the income from the asset will be more than the cost of borrowing. Almost always this involves the risk that borrowing costs will be larger than the income from the asset – causing a reduction in profits.

Related formulas

Variables

DOLDegree of Operating Leverage (dimensionless)
EBITEarnings before interest and taxes. (dimensionless)
FixCFixed costs (dimensionless)