1. What is Degree of Financial Leverage?

The Degree of Financial Leverage (DFL) measures the sensitivity of a company's earnings per share (EPS) to fluctuations in its operating income (EBIT). It shows how much financial leverage (debt) a company is using.

2. How Does the Calculator Work?

The calculator uses the DFL formula:

Where:

• %ΔEPS — Percentage change in earnings per share
• %ΔEBIT — Percentage change in earnings before interest and taxes

Explanation: A higher DFL indicates greater financial risk as EPS becomes more volatile with changes in EBIT.

3. Importance of DFL Calculation

Details: Understanding DFL helps assess a company's financial risk and how debt affects shareholder returns. It's crucial for capital structure decisions.

4. Using the Calculator

Tips: Enter percentage changes in EPS and EBIT (without % sign). Both values must be valid numbers (EBIT change cannot be zero).

5. Frequently Asked Questions (FAQ)

Q1: What does a DFL of 1.5 mean?
A: It means a 1% change in EBIT would result in a 1.5% change in EPS.

Q2: What is a good DFL value?
A: There's no universal "good" value, but higher DFL means higher risk. Companies with stable cash flows can handle higher DFL.

Q3: How does DFL differ from DOL?
A: DOL (Degree of Operating Leverage) measures operating risk from fixed costs, while DFL measures financial risk from debt.

Q4: Can DFL be negative?
A: Yes, if EPS and EBIT changes are in opposite directions (very rare).

Q5: How does DFL affect investment decisions?
A: Investors consider DFL when assessing risk - higher DFL means potentially higher returns but with greater risk.