Degree of Operating Leverage (DOL) Calculator

Calculate Degree of Operating Leverage



Formula

The formula to calculate the Degree of Operating Leverage (DOL) is:

\[ \text{DOL} = \frac{\text{% Change in EBIT}}{\text{% Change in Sales}} \]

Where:

What is Degree of Operating Leverage?

Degree of Operating Leverage (DOL) is a financial metric used to assess the sensitivity of a company’s operating income to changes in its sales revenue. It quantifies the relationship between a company’s fixed and variable costs.

A higher DOL indicates that a company has a higher proportion of fixed costs compared to variable costs, meaning that a small change in sales revenue will have a significant impact on operating income. Conversely, a lower DOL implies a larger proportion of variable costs, leading to less sensitivity to sales fluctuations.

Example Calculation

Let's consider an example:

Using the formula to calculate the Degree of Operating Leverage:

\[ \text{DOL} = \frac{15}{5} = 3 \]

This demonstrates that with a 15% change in EBIT and a 5% change in sales, the Degree of Operating Leverage would be 3, indicating that for every 1% change in sales, EBIT changes by 3%.