rgonzalez

DOL = (Revenue - Variable Cost)/(Revenue - Variable Cost - Fixed Cost)

Measures how Operating Income changes relative to a change in Revenue. eg. If DOL = 1.3 and Revenue increase by 2%. Operating Income will increase 2% * 1.3 = 2.6%

DFL = (Revenue - Variable Cost - Fixed Cost)/(Revenue - Variable Cost - Fixed Cost - Interest)

Measures how Net Income changes relative to a change in Operating Income. eg. If DFL = 2 and Operating Income increase 5%. Net Income will increase 5% * 2 = 10%

DTL = (Revenue - Variable Cost)/(Revenue - Variable Cost - Fixed Cost - Interest)

Measures how Net Income changes relative to a change in Revenue. eg. If DTL = 4 and Revenue increase by 3%. Net Income will increase 3% * 4 = 12%

Relationship between the 3: DOL * DFL = DTL