1. What is Degree of Total Leverage?

The Degree of Total Leverage (DTL) measures the sensitivity of a company's earnings per share (EPS) to changes in its sales. It combines both operating and financial leverage to show the total risk of the company.

2. How Does the Calculator Work?

The calculator uses the DTL formula:

Where:

• \( DOL \) — Degree of Operating Leverage
• \( DFL \) — Degree of Financial Leverage

Explanation: DTL shows how a percentage change in sales will affect EPS. Higher DTL means greater sensitivity of EPS to sales changes.

3. Importance of DTL Calculation

Details: Understanding DTL helps businesses assess their risk profile and make informed decisions about capital structure and operations.

4. Using the Calculator

Tips: Enter both DOL and DFL values (must be positive numbers). The calculator will multiply them to give the DTL.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTL value?
A: There's no "good" value - it depends on risk tolerance. Higher DTL means higher potential returns but also higher risk.

Q2: How is DOL calculated?
A: DOL = % change in operating income / % change in sales, or DOL = (Sales - Variable Costs) / (Sales - Variable Costs - Fixed Costs)

Q3: How is DFL calculated?
A: DFL = % change in EPS / % change in EBIT, or DFL = EBIT / (EBIT - Interest)

Q4: What industries typically have high DTL?
A: Capital-intensive industries with high fixed costs and debt levels (e.g., manufacturing, utilities) often have higher DTL.

Q5: Can DTL be negative?
A: Normally no, as both DOL and DFL are positive. Negative values would indicate calculation errors.