What is the 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.

How to Calculate the Degree of Total Leverage

The degree of total leverage can be calculated by dividing the percentage change in earnings per share by the percentage change in sales. The formula is as follows:

Percentage change in earnings per share ÷ Percentage change in sales = Degree of total leverage