Degree of total leverage

The degree of total leverage is the proportional change in net income associated with a given change in revenues. It is a combination of the degree of operating leverage and the degree of financial leverage. When a company has a large amount of operating and financial leverage, even a modest change in its sales can trigger a substantial change in its profitability. The degree of total leverage can be calculated by dividing the percentage change in earnings per share by the percentage change in sales.