Degree of Operating Leverage (DOL)

The degree of operating leverage (DOL) is defined as: \[DOL = \frac{\%\ change\ in\ EBIT}{\%\ change\ in\ Sales}\ =\ \frac{\dfrac{\Delta EBIT}{EBIT}}{\dfrac{\Delta Sales}{Sales}}\] Suppose that a company has only variable expenses, and those are 70% of sales. If Sales are \$100,000 and ΔSales is \$1,000, then, Expenses will be \$70,000 (= \$100,000 × 70%) ΔExpenses will […]