The formula to calculate the Degree of Financial Leverage is:
\[ \text{DFL} = \frac{\text{EBIT}}{\text{EBIT} - \text{I}} \]
Where:
The Degree of Financial Leverage is a metric that measures the sensitivity of a company’s operating income due to changes in its capital structure.
Let's assume the following values:
Using the formula:
\[ \text{DFL} = \frac{450000}{450000 - 7} \]
Evaluating:
\[ \text{DFL} = 1.00001555579753 \]
The Degree of Financial Leverage is approximately 1.00001555579753.
| Earnings Before Interest and Taxes | Interest | Degree of Financial Leverage |
|---|---|---|
| 400000 | 5 | 1.000012500156 |
| 400000 | 6 | 1.000015000225 |
| 400000 | 7 | 1.000017500306 |
| 400000 | 8 | 1.000020000400 |
| 400000 | 9 | 1.000022500506 |
| 400000 | 10 | 1.000025000625 |
| 425000 | 5 | 1.000011764844 |
| 425000 | 6 | 1.000014117846 |
| 425000 | 7 | 1.000016470860 |
| 425000 | 8 | 1.000018823884 |
| 425000 | 9 | 1.000021176919 |
| 425000 | 10 | 1.000023529965 |
| 450000 | 5 | 1.000011111235 |
| 450000 | 6 | 1.000013333511 |
| 450000 | 7 | 1.000015555798 |
| 450000 | 8 | 1.000017778094 |
| 450000 | 9 | 1.000020000400 |
| 450000 | 10 | 1.000022222716 |
| 475000 | 5 | 1.000010526427 |
| 475000 | 6 | 1.000012631739 |
| 475000 | 7 | 1.000014737059 |
| 475000 | 8 | 1.000016842389 |
| 475000 | 9 | 1.000018947727 |
| 475000 | 10 | 1.000021053075 |
| 500000 | 5 | 1.000010000100 |
| 500000 | 6 | 1.000012000144 |
| 500000 | 7 | 1.000014000196 |
| 500000 | 8 | 1.000016000256 |
| 500000 | 9 | 1.000018000324 |
| 500000 | 10 | 1.000020000400 |