If anyone could help, I’ll appreciate it. I noticed for DOL, DFL, and DTL, there are two discrete ways to perform each calculation. For operating leverage, DOL= %change of EBIT/%change Units sold or DOL= Q(P-V)/Q(P-V)-F, which is basically the gross profit/EBIT. For DFL, DFL= %change in Net income/%change EBIT or DFL= [Q(P-V)-F]/[Q(P-V)-F-INT], which is basically EBIT/EBT…and so on. I’m having a problem discerning how the first formula relates to the second for each of the leverage calculation. For example, how can I relate DFL= %change in Net income/%change EBIT to DFL= [Q(P-V)-F]/[Q(P-V)-F-INT] and so on. Any insight?
DOL={[Q’ *(P-VC) - FC - (Q *(P - VC)- FC] / Q*(P - VC) - FC} / [(Q’ - Q)/Q] = {[Q’ *(P-VC) - FC - Q *(P-VC)+FC] / (Q *(P - VC) - FC)} / [(Q’ - Q)/Q] = {(Q’-Q) * (P-VC) / (Q *(P - VC) - FC)} / [(Q’ - Q) /Q] DOL = Q *(P-VC) / (Q *(P-VC) -FC)