Degree of Operating Leverage(DOL) Formula

DOL assists a firm in quantifying its operational risk, i.e., the risk arising from its mix of fixed and variable costs.

DOL = Q × (P - V)Q × (P - V) - F

Where,

Q = the number of units

P = the price per unit

V = the variable operating cost per unit

F = the fixed operating cost

P - V = the per unit contribution margin

Q (P - V) = the contribution margin

Degree of Financial Leverage(DFL) Formula

DFL assists a firm in quantifying its financial risk, i.e., the risk relating to how the firm finances its operations.

DOL = Q × (P - V) - FQ × (P - V) - F - C

Degree of Total Leverage(DTL) Formula

DTL is a measure of the sensitivity of the firn net income to changes in the number of units produced and sold.

DOL = Q × (P - V)Q × (P - V) - F - C