Degree of Financial Leverage Calculator
Estimate how interest and preferred dividends amplify the effect of EBIT changes on earnings per share.
Quick answer
Degree of financial leverage shows how sensitive EPS is to a change in EBIT: DFL = EBIT / (EBIT - interest - preferred dividends / (1 - tax rate)). Multiply by degree of operating leverage for combined leverage.
Degree of Financial Leverage Calculator
Used to gross up preferred dividends and to compute EPS.
Leave blank to skip the EPS figures.
Leave blank to skip combined leverage.
Use a negative value to test a decline.
Degree of Financial Leverage
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Combined Leverage (DOL × DFL)
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Predicted EPS / Earnings Change
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Earnings to Common (Base)
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EPS (Base)
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Earnings Sensitivity to EBIT
| EBIT change | EBIT (₹) | Earnings to common (₹) | EPS | Earnings change |
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Assumptions & method
- DFL = EBIT ÷ (EBIT − interest − preferred dividends ÷ (1 − tax rate)).
- Earnings to common = (EBIT − interest) × (1 − tax rate) − preferred dividends. EPS = earnings to common ÷ shares.
- Combined leverage = DOL × DFL. The DOL is whatever figure you enter; it is not calculated here.
- Percentage change in earnings = DFL × percentage change in EBIT. Interest, preferred dividends, tax rate and share count are held fixed.
- Tax is applied linearly even when pre-tax profit turns negative. Not included: loss carry-forwards, convertibles, option dilution or one-off items.
Results are estimates based on the figures you enter. They are not guarantees and not financial advice.
What financial leverage does to earnings
Financial leverage arises when a company funds itself partly with fixed-cost sources such as debt or preferred shares. Interest and preferred dividends do not change when operating profit does, so a given percentage move in EBIT becomes a larger percentage move in earnings per share. The degree of financial leverage measures that amplification as EBIT divided by the profit left after fixed financing charges. This calculator also combines it with an operating leverage figure you provide, and it shows the estimated earnings and EPS if EBIT changes by a percentage you choose, so you can see how the effect works in both good and bad cases.