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# 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 […]