Page 48 - FINAL CFA SLIDES DECEMBER 2018 DAY 11
P. 48
Session Unit 11:
37. Measures of Leverage
The degree of financial leverage (DFL) is interpreted as the ratio of the percentage change
in net income (or EPS) to the percentage change in EBIT (p.69):
tanties
Example: Degree of financial leverage, p.69: From the previous example, Atom Company’s operating
income for selling 100,000 units is $60,000. Assume that Atom Company has annual interest expense
of $18,000. If Atom’s EBIT increases by 10%, by how much will its earnings per share increase?
If you plug in zero for fixed costs,
DOL should be one, and if you plug
in zero for interest, DFL should be
one
