If you need degree of operating leverage, change in sales and change in ebit and you already have period one ebit, period one sales, period two ebit and period two sales, this calculator does the substitution for you. It suits a quick check, a homework answer you want to confirm, or any figure you need to sanity test.
What Is the Degree of Operating Leverage Calculator?
The degree of operating leverage calculator takes period one ebit, period one sales, period two ebit and period two sales and turns them into degree of operating leverage, change in sales and change in ebit.
It is the kind of calculation you would otherwise do on the back of an envelope: mechanical, repeatable and easy to get subtly wrong without noticing.
How the Degree of Operating Leverage Figure Is Built
Each result is calculated from the ones before it, so the working is fully visible. That matters when the answer is going to be quoted to somebody else and you need to be able to explain where it came from.
The figures are exactly as good as the assumptions underneath them. Check the rates, the periods and the tax treatment before you rely on the result.
Reading the Result Sensibly
A small change in an input can move the result by much more than you would expect, particularly where the calculation divides by one of the figures you supplied. That is worth understanding before you rely on a figure.
For anything that will be committed to, write the inputs down beside the result. A number you can reproduce is worth far more than one you cannot explain.
A Worked Example
Working through an example, with period one ebit set to 10, period one sales set to 5, period two ebit set to 2, the calculator returns change in ebit of -0.8, and change in sales of 19, and degree of operating leverage of -0.04. Substitute your own figures and the same steps produce the same kind of answer.
Frequently Asked Questions
What do I need to work out degree of operating leverage?
Enter period one ebit, period one sales, period two ebit and period two sales. The calculator then works through the relationship and reports degree of operating leverage, change in sales and change in ebit.
What does the degree of operating leverage actually calculate?
It takes period one ebit, period one sales, period two ebit and period two sales and converts them into degree of operating leverage, change in sales and change in ebit using the standard relationship for this problem. Each step is applied in turn, so every output is traceable back to the numbers you typed in.
How should I enter period one ebit?
Use the value you actually have, in the unit shown next to the field. Enter every value in the same unit system. The calculator assumes the figures you supply are consistent, so it cannot correct a mistake that happens before the calculation starts.
Can I use this for a quick estimate as well as a precise answer?
Yes. The calculator is built for quick checks, so round your inputs to a sensible number of significant figures and the result will be just as useful. If you need more precision, keep the same method and add digits to the inputs rather than adjusting the method itself.
Do I have to fill in every field?
Only the fields a particular result depends on. If you leave one blank, the results that need it simply show a note instead of a number, and everything else still works.