Leverage

Question 1

Degree of operating leverage (DOL)

Answer 1

= %chgEBIT/%chgSales

or

= Contribution margin $ / EBIT $

Question 2

Degree of financial leverage

Answer 2

= 1 + D/E
= A/E
= %chgEPS/%chgEBIT
=EBIT/EBT

Question 3

Degree of total leverage

Answer 3

= DOL x DFL

= %chgEPS/%chgSales

Question 4

Breakeven units

Answer 4

(Fixed operating costs + Fixed financing cost) / CM

Operating breakeven would not include the fixed financing costs

Question 5

Sales $ to BE

Answer 5

= FC / CM %