How do you calculate the degree of operating leverage?

Calculate DOL by dividing the percentage change in EBIT by the percentage change in sales. First, find the percentage change for both metrics using ((current period - previous period) ÷ previous period) × 100, then divide the EBIT percentage change by the sales percentage change.

What is the formula of DOL?

The DOL formula is: DOL = (Percentage change in EBIT) ÷ (Percentage change in sales). Alternatively, it can be expressed as: DOL = (Sales - Variable costs) ÷ (Sales - Variable costs - Fixed costs), which shows the relationship between contribution margin and operating income.

Can DOL be less than 1?

Yes, DOL can be less than 1, though it's uncommon in healthy businesses. This occurs when EBIT changes by a smaller percentage than sales, typically in companies with very high variable costs relative to fixed costs, or during periods of declining operational efficiency.

How to calculate DOL and DFL?

DOL measures operating risk: (% change in EBIT) ÷ (% change in sales). DFL measures financial risk: (% change in EPS) ÷ (% change in EBIT). While DOL focuses on how sales affect operating income, DFL shows how operating income changes affect earnings per share after interest expenses.

Degree of Operating Leverage (DOL) Calculator

Quickly measure how sensitive your company's profits are to sales changes with operating leverage analysis.

This calculator is created with Creative Widgets

500+ businesses have built calculators just like this. Build yours free!

Build Free Calculator

How Degree of Operating Leverage (DOL) Calculator Works

The Degree of Operating Leverage (DOL) measures how much your company's operating income will change when sales fluctuate. It's calculated by comparing the percentage change in EBIT (operating income) to the percentage change in sales between two periods.

Companies with high fixed costs typically have higher DOL values, meaning small sales increases can lead to dramatic profit jumps. This magnifying effect works both ways - during sales declines, profits can drop sharply too.

DOL is essential for understanding operational risk and planning business strategy. Manufacturing companies often have higher DOL than service businesses due to equipment, facilities, and other fixed expenses that don't change with sales volume.

This metric helps investors, managers, and lenders assess how volatile a company's earnings might be during economic changes. A DOL of 2.5 means a 10% sales increase would boost operating income by 25%.

Degree of Operating Leverage (DOL) Calculator Formula Breakdown

Formula

DOL = (Percentage change in EBIT) ÷ (Percentage change in sales)
Percentage change in EBIT = ((Current period EBIT - Previous period EBIT) ÷ Previous period EBIT) × 100
Percentage change in sales = ((Current period sales - Previous period sales) ÷ Previous period sales) × 100

Variables Explained

Previous period salesTotal revenue from the earlier time period being compared, typically from the prior year or quarter. This baseline figure comes from your income statement and should represent the same business scope as your current period.
Previous period EBITEarnings Before Interest and Taxes from the earlier period, also called operating income. This shows profit from core operations before financing costs and taxes, found on your income statement below operating expenses.
Current period salesTotal revenue from the more recent time period being analyzed. Use the same accounting methods and business scope as the previous period to ensure accurate comparison of operational performance.
Current period EBITOperating income for the current period, calculated as revenue minus all operating expenses but before interest and taxes. This reflects how efficiently your core business operations generated profit during this timeframe.

Example Calculation

Given:

Previous period sales: $200,000
Previous period EBIT: $20,000
Current period sales: $250,000
Current period EBIT: $50,000

Calculation:

EBIT change: ($50,000 - $20,000) ÷ $20,000 = $30,000 ÷ $20,000 = 1.50 = 150.00%
Sales change: ($250,000 - $200,000) ÷ $200,000 = $50,000 ÷ $200,000 = 0.25 = 25.00%
DOL = 150.00% ÷ 25.00% = 6.00

Result:

6.00

Explanation

This example shows a company that increased sales by 25% but saw operating income jump by 150%, resulting in a DOL of 6.00. This high leverage means the business has significant fixed costs, so sales growth translates into disproportionately large profit increases.

Tips for Using Degree of Operating Leverage (DOL) Calculator

💡Use periods of similar length and ensure both periods represent normal business operations - avoid comparing periods affected by one-time events or seasonal anomalies for more meaningful results.
💡Companies with DOL above 1.5 face higher operational risk, meaning earnings can swing dramatically with sales changes - this is crucial information for budgeting and investment decisions.
💡DOL varies significantly by industry: manufacturing and capital-intensive businesses typically show higher values (2-4) while service companies often have lower DOL (1-2) due to fewer fixed costs.

“Feels like Webflow but for calculators“

How it works?

Create engaging calculators in 3 simple steps

Add calculator elements

Build the custom calculator in less than 5 minutes. It's very easy with drag and drop interface

->↓

Copy embed script

When you are happy with your calculator. See the final preview and copy the embed script.

->↓

Install the calculator

Paste the script into the HTML of your website. Oh, and it works on any platform.

Eugen

Creator of Creative Widgets

“After 10+ years in digital marketing, I’ve built calculators that drove thousands of new leads for clients. I realized one thing: calculators convert. They're killer for CRO and great for SEO. That's why I built Creative Widgets—an easy, no-code calculator builder. ”

It's free. Try it out. You'll like it.

— Eugen N.Build Your Free Calculator

FAQ

Have outstanding questions?