Degree Of Combined Leverage - DCL

For those of you who are fans of The Big Bang Theory and quantitative theory in general, a) sorry and b) this one's for you: The Degree of Combined Leverage, or DCL, is a ratio to determine how operating leverage and financial leverage can affect earnings per share. The formula runs:

DCL= (% EPS change/% Sales Change) = Degree of Operating Leverage x Degree of Financial Leverage

DOL is calculated as the change % of company earnings before interest & taxes (EBIT) divided by % change of previous year, quarter, or similar time period.

DFL is calculated as the change % of EPS divided by the change % of EBIT.

You'll love running these calculations as your boss drums her fingers, angrily waiting for the numbers. Bazinga.

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Finance a la shmoop. What is operating leverage? It's good leverage not like

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few things like when you scale in operations and grow very very large then

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have a whole lot more operating leverage with Safeway than does Salmonelli's [Scales of the businesses and Safeway showing Coca-Cola with more leverage]

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leverage. While operating leverage comes in a range of forms like for example

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few Chinese companies spent a hundred billion dollars or so making themselves [Apple and Intel in a boxing ring]

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into viable competitors and yeah and that's [Apple chucks a fire ring at Intel and knocks it out the ring]

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what happens when you try to be a monopoly in a competitive world.

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running itself usually translates directly in the form of profit margins

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margins will usually run which is very different from this kind of operating [A surgeon wiggling a tool round in an operation]

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leverage...

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