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The degree of operating leverage shows the effect on operating income of the cost structure of a business. The higher the fixed costs the higher the leverage and the more volatile and risky the operating income of a business is viewed.
The degree of operating leverage calculator allows for details relating to two businesses or accounting periods to be entered so that comparisons can be made.
The operating leverage shows the level of fixed cost leverage within a business, and the degree of operating leverage shows the impact of the cost structure on the operating income of the business.
The operating income for a business with high leverage can change dramatically for a given change in the number of units sold, and its earnings are said to be more volatile and therefore more risky
The debt to equity ratio is the ratio of how much a business owes (debt) compared to how much the owners have invested (equity). It is calculated by dividing debt by owners equity.
The Excel debt equity ratio calculator, available for download below, is used to compute this important leverage ratio by entering details relating to the debt and owners equity of the business.
The times interest earned ratio is an important leverage ratio indicating whether a business has sufficient earnings to make interest payments on its borrowings.
This Excel times interest earned calculator, available for download below, calculates the TIE ratio using the times interest earned formula, by entering details of the earnings before interest and tax (EBIT), and the interest expense from the income statement of the business.
The interest coverage ratio measures the amount of earnings a business has to make interest payments. It is calculated by dividing the profit before interest and tax by the interest expense. It is sometimes called the interest cover ratio or simply interest coverage or interest cover.
A Leverage Ratio is used to show the capital structure of a business and in particular the level of debt in relation to owners equity. A business with a high level of debt is considered to be more risky but will give greater returns to the owners provided cash and profit are managed correctly.
