DOL, DFL, DTL

CFA General
#1

Sorry for the amateurish question, but what’s typically considered “normal” for operating, financial, and total leverage?

#2

This is going to depend largely on the industry and sector you are looking at, among other things.

#3

Depends on the type of business.

#4

Heavy industrial services – high fixed costs

#5

Here are the numbers, but I’m not sure what they mean DOL 1.20 DFL 1.05 DTL 1.26 Another question: what does it mean when these are volatile year after year? Say year 1 it had DTL of 1.8, then 0.9 for year two, then 1.26 the third year?

#6

DFL = %change in net income / %change in operating income DOL = %change in operating income / %change in sales DTL = DFL*DOL = %change in net income / %change in sales You would expect that there would be variations from year-to-year which should average out over the long-term.