DEGREE OF OPERATING LEVERAGE - DOL
A leverage ratio summarizing the effect an amount of operating leverage has on a company's earnings before interest and taxes. Operating leverage involves using a large proportion of fixed costs to variable costs in the operations of the firm. This ratio is useful as it helps the user in determining the effects that a given level of operating leverage has on the earnings potential of the firm. This ratio can also be used to help the firm determine the most appropriate level of operating leverage in order to maximize the company's EBIT. The higher the degree of operating leverage, the more volatile the EBIT figure will be relative to a given change in sales, all other things remaining the same.
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