 # Conquering the many forms of DOL/DFL/DTL..

…tips?

how many forms are there?

not being a smartass. i haven’t worked on this in a while, and i only remember 1 for each… ebit/ebit-i for finanical leverage s-vc/s-vc-f for operating an the product of these for total leverage.

shfourteen-teen

DOL = %chn Op. Income/%chn Units Sold = Q(P-V)/Q(P-V) - F = Cont Mgn/EBIT DFL = %chn NI/%chn Op. Income = Q(P-V) - F/Q(P-V) - F - I = EBIT/EBT DTL = %chn NI/%chn Units Sold = DOL x DFL

think you just have to memorize them. as for the interpretations of the formulas. i always put the smaller number in the numerater starting with % change in sales in the denominator. %change ebit/%change is sales – op leverage. %change eps/%change in ebit – fin leverage then putting them together %change in eps/%change in sales. i don’t know why this helps me memorize this, but it does. sorry not helpful.

Hate how the % change formulas are counter-intuitive to the others given EBIT switches from denominator to numerator…

agreed.

Add to this the Breakeven quantity formula Q(BE) = FC/(P - VC) you better sell more than Q(BE)

that one is pretty logical…luckily