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Degree of Financial Leverage (DFL)

Estimate how fixed interest and preferred dividends affect common earnings sensitivity to EBIT.

Estimate how fixed interest and preferred dividends affect common earnings sensitivity to EBIT. Enter your own values below. The calculator shows the formula it uses, a graph and a step-by-step explanation of the result.

Also searched as: DFL, financial leverage

Disclaimer

These tools are for education and general information. They do not provide financial, investment, tax, or legal advice. Confirm important decisions with a qualified professional.

How the calculation works

Formula

EBT = EBIT − Interest; Common Earnings = EBT × (1 − Tax Rate) − Preferred Dividends; DFL = [EBIT × (1 − Tax Rate)] ÷ Common Earnings

Annual interest expense is deducted before tax; preferred dividends are deducted from after-tax earnings. Negative EPS is retained, while DFL is undefined at zero common earnings.

What you enter

  • Earnings before interest and tax (EBIT)
  • Annual interest expense
  • Annual preferred dividends (optional)
  • Corporate tax rate (%)
  • Common shares outstanding
  • Display currency (formatting only — no exchange-rate conversion)

What the results show

  • Degree of financial leverage (DFL)
  • EBIT
  • Annual interest expense
  • Earnings before tax (EBT)
  • Corporate tax rate
  • Annual preferred dividends
  • Net income available to common shareholders
  • Common shares outstanding
  • Earnings per share (EPS)

Results are estimates based only on the values and assumptions you enter. Open the detailed analysis to see the graph, the step-by-step story and the stated assumptions, and use the report menu to print, save as PDF, export a schedule to CSV or share the inputs.

Privacy note on share links: Copy Link and share actions place the values you entered in the web address. Anyone with the link can see them, and they may be kept in browser history or server logs. Do not share links that contain sensitive personal financial information.

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When to use this calculator

How does debt magnify earnings changes? Managers and finance students can use it to get a quick estimate from their own figures.

Worked example

EBIT of 100,000, interest of 20,000 and a 25% tax rate give common earnings of 60,000. DFL = (100,000 × 0.75) / 60,000 = 1.25.

Illustrative figures in any currency. Enter your own values in the calculator above.