Pairs with this site’s degree of operating leverage calculator — DFL measures a different kind of sensitivity, driven by debt and fixed interest expense rather than fixed operating costs.
How it works
EBIT divided by EBIT minus interest expense gives the degree of financial leverage — the approximate percentage change in earnings per share for each 1% change in EBIT.
What this does not include
This computes DFL alone — multiplying DOL and DFL together gives total (combined) leverage, showing how sensitive EPS is to a change in sales through both operating and financial leverage combined.
How to use this calculator
- Enter EBIT and interest expense.
A worked example
EBIT of $150,000 against $30,000 in interest expense: degree of financial leverage = 150,000 ÷ (150,000−30,000) = 1.25.
What the variables mean
| Variable | Meaning |
|---|---|
| EBIT | Earnings before interest and taxes |
| Interest expense | Total interest owed on debt |
Edge cases worth knowing
A higher DFL means earnings per share is more sensitive to changes in EBIT — more debt amplifies both gains and losses in EPS relative to operating income swings, a form of financial risk distinct from operating leverage.
Interest expense equal to EBIT makes the calculation undefined — the denominator becomes zero, so the calculator declines to show a result for that case.
Frequently asked questions
Why does more debt increase DFL?
More debt means more fixed interest expense, which must be covered before any residual earnings change proportionally with EBIT — amplifying the swing in what’s left for shareholders.
Is high financial leverage always bad?
Not necessarily — leverage amplifies returns in both directions, so it can boost shareholder returns in good years, but it also increases risk and downside in weak years.
How does DFL relate to the interest-coverage-ratio calculator on this site?
Both use EBIT and interest expense, but interest coverage measures how many times EBIT could cover interest payments (a safety margin), while DFL measures earnings sensitivity to EBIT changes (a leverage amplification effect).
