Degree of Financial Leverage (DFL)

The degree of financial leverage (DFL) is defined as: \[DFL\ =\ \frac{\%\ change\ in\ Net\ Income}{\%\ change\ in\ EBIT}\ =\ \frac{\dfrac{\Delta Net\ Income}{Net\ Income}}{\dfrac{\Delta EBIT}{EBIT}}\] Suppose that a company has no interest expense, and that taxes are 40% of EBIT. If EBIT is \$20,000 and ΔEBIT is \$300, then, Taxes will be \$8,000 (= \$20,000 […]