|Author||Topic: Degree of Financial Leverage|
|what is the formula for Degree of Financial Leverage? I see different one from different source. Can anyone here help?|
|Ive heard about financial leverage ratio which is assets/equity....wats degree of financial leverage?|
|Financial leverage involves using fixed costs to finance the firm, and will include higher expenses before interest and taxes (EBIT). The higher the degree of financial leverage, the more volatile EPS will be, all other things remaining the same. The formula is as follows:
% change in EPS divided by % change in EBIT.
Where P-V is the price minus variable cost and F the operational fixed cost and C the financial fixed cost. This is essentially % change in net income divided by % change in operating income