Leverage | লিভারেজ | Principles of Finance | Class 01

Leverage | লিভারেজ | Principles of Finance | Class 01 Rasel Bhuiyan Teacher | Founder & CEO BBA WORLD 365 For Course Purchase / Online Class: Rasel Sir: 01675289476 (WhatsApp - Only Text) Follow me on facebook:   / nilav.rasel   FB Group link for Subscribers:   / 411149726155550   What is Leverage? Leverage is the use of debt or borrowed capital in order to undertake an investment or project. It is commonly used as a way to boost an entity's equity base. The concept of leverage is used by both investors and companies: What Is the Degree of Operating Leverage (DOL)? The degree of operating leverage (DOL) is a multiple that measures how much the operating income of a company will change in response to a change in sales. Companies with a large proportion of fixed costs (or costs that don't change with production) to variable costs (costs that change with production volume) have higher levels of operating leverage. The DOL ratio assists analysts in determining the impact of any change in sales on company earnings or profit. What Is a Degree of Financial Leverage - DFL? A degree of financial leverage (DFL) is a leverage ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. The degree of financial leverage (DFL) measures the percentage change in EPS for a unit change in operating income, also known as earnings before interest and taxes (EBIT). This ratio indicates that the higher the degree of financial leverage, the more volatile earnings will be. Since interest is usually a fixed expense, leverage magnifies returns and EPS. This is good when operating income is rising, but it can be a problem when operating income is under pressure. What Is the Degree of Combined Leverage (DCL)? A degree of combined leverage (DCL) is a leverage ratio that summarizes the combined effect that the degree of operating leverage (DOL) and the degree of financial leverage has on earnings per share (EPS), given a particular change in sales. This ratio can be used to help determine the most optimal level of financial and operating leverage to use in any firm. #leverage #principles_of_finance