The formula to calculate the total leverage is:
\[ TL = DOL \times DFL \]
Where:
Total leverage is a measure that combines the effects of operating leverage and financial leverage. It indicates how sensitive a company's earnings per share (EPS) are to changes in sales.
Example 1:
Step 1: Multiply the degree of operating leverage by the degree of financial leverage:
\[ TL = 3 \times 2 = 6 \]
Example 2:
Step 1: Multiply the degree of operating leverage by the degree of financial leverage:
\[ TL = 4 \times 1.5 = 6 \]