Page 41 - FINAL CFA I SLIDES JUNE 2019 DAY 10

Session Unit 11:
37. Measures of Leverage

The degree of financial leverage (DFL) = ratio of the % change in net income (or EPS) to the
% 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 interest?

DFL = 1