See how our partners can help you ace your CFA exams.
Question about Measures of Leverage - Degree of Operating Leverage
This material is from LOS 37.b..
The degree of operating leverage (DOL) is defined as the percentage change in operating income (EBIT) that results from a given percentage change in sales
DOL = percentage change in EBIT/percentage change in sales
which can be calculated by:
DOL = Q(P - V) / Q(P-V) - F
where Q = quantity of units sold,
P = price per unit
V = variable cost per unit
F = fixed cost
Can someone please explain why DOL = percentage change in EBIT/percentage change in sales = Q(P - V) / Q(P-V) - F ?? I'm having trouble understanding why they are equivalent.