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CONCEPT OF LEVERAGE

In business, leverage means using fixed costs of

fixed expenses to increase profitability.

The concept of leverage will see the effect of fixed

costs in operations and finance companies, and

identify their impact on the returns and risks.

Business leverage can be divided into three types :

1. Degree of Operating Leverage (DOL)

2. Degree of Financial Leverage (DFL)

3. Degree of Combined Leverage (DCL)

Degree of Operating Leverage (DOL)

To see the impact on EBIT due to changes in the level

of sales. The higher the operating leverage, will give a

great impact on EBIT in the event of any change in the
level of sales.

To measure this change, the degree of operating leverage

(DOL) is used to determine the effect on EBIT due to
changes in the level of sales.

DOL = Contribution
EBIT