is it lower the better? Thanks.
lower DOL -> lower risk -> lower potential return so define “better” first…
i wouldnt say its “better” but maybe less risky. If i have more fixed costs, it will take me longer to break even, but once i do, i earn higher profits than i would if i had gone with low leverage (all variable costs).
yes, the lower the better the lower DOL, the less volatile EBIT to the change of sales.
disagree - its all about how much risk you want to take in your operations and structure your company. For some firms, low leverage will be better. For some, high leverage will be better. I dont think you can define “better” with leverage
agree it all depends…if my DOL is 2.5 and my WACC is 8% while company B’s DOL is only 1.5 but their WACC is 12%, i am better off despite having higher leverage