Degree of financial leverage (DFL)

Definition

Degree of financial leverage (DFL) in plain English

Borrowing money is like using a lever: it magnifies results in both directions. Degree of financial leverage (DFL) measures that magnification — specifically, if the company's core operating profit (called EBIT, basically earnings before interest and taxes) rises or falls by 1%, how much more does the profit-per-share for owners swing? A DFL of 2 means a 1% wiggle in operating profit becomes a 2% wiggle in each owner's slice, because fixed loan interest has to be paid no matter what, amplifying the ups and downs. That's the double-edged sword of debt: it juices your good years and deepens your bad ones.

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• P/E ratio
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Practice Degree of financial leverage (DFL)

What is its Degree of Financial Leverage (DFL)?

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