Degree of total leverage (DTL)

Definition

Degree of total leverage (DTL) in plain English

A company faces two amplifiers stacked on top of each other. First, fixed operating costs (like rent and salaries) magnify how sales swings turn into operating-profit swings — that's operating leverage (DOL). Second, fixed loan interest magnifies how operating-profit swings turn into owner-profit swings — that's financial leverage (DFL). Degree of total leverage (DTL) simply multiplies the two together to answer the big-picture question: if sales move 1%, how much does profit-per-share move? A DTL of 3 means a modest 1% change in sales balloons into a 3% change for owners — showing just how sensitive the bottom line is once both amplifiers are in play.

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• P/E ratio
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Related Principles of Finance terms

• After-tax cost of debt
• Business risk
• Capital structure
• Cost of preferred equity
• Debt-to-capital ratio
• Debt-to-equity ratio
• Degree of financial leverage (DFL)
• Financial leverage
• Hamada equation
• Interest tax shield