Financial Leverage
`"DFL" = "Percentage change in earnings per share" / "Percentage change in operating income" `
`"% change in earnings per share"` | ||
`"% change in operating income"` | ||
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This equation is used to compute the percentage change in earnings per share that occurs as a result of the percentage change in operating income.
Basically, financial leverage is the financing of your company using other people's money. The higher the amount of liabilities, the greater your financial leverage and the lower the amount of equity you've invested in the company.
REFERENCE
Philip J. Adelman, Alan M. Marks.(2009). Entrepreneurial Finance. 5th Edition. Prentice Hall.
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