Financial Leverage Calculator
Calculate the Degree of Financial Leverage (DFL) and analyze how EBIT changes affect EPS.
Financial Data
$100,000
$10,000$1,000,000
$20,000
$0$500,000
25%
0%50%
100,000 shares
1,000 shares10,000,000 shares
10%
-50%50%
Degree of Financial Leverage (DFL)
1.25x
A 10% change in EBIT = 12.5% change in EPS
Net Income
$60,000
EPS
$0.60
Interest Coverage
5.00x
Healthy
Taxes
$20,000
Income Statement Summary
Operating Income (EBIT)$100,000
- Interest Expense($20,000)
EBT$80,000
- Taxes (25%)($20,000)
Net Income$60,000
What-If: 10% EBIT Change
New EBIT$110,000
New Net Income$67,500
New EPS$0.68
EPS Change+12.5%
Financial Leverage Formula
DFL = EBIT / (EBIT - Interest) = EBIT / EBT
High Financial Leverage
More debt relative to equity. EPS is more sensitive to changes in operating income. Higher risk but potentially higher returns to shareholders.
Interest Coverage
Ratio of EBIT to interest expense. Generally, 3x or higher is considered healthy. Below 1.5x may indicate financial stress.