A degree of operating leverage of 1.5 times indicates that _____.
A) for every 1 percent change in EPS there will be a 1.5 percent change in sales
B) for every 1 percent change in interest there will be a 1.5 percent change in EBIT
C) for every 1 percent change in sales there will be a 1.5 percent change in EBIT
D) for every 1 percent change in EBIT there will be a 1.5 percent change in EPS
E) for every 1 percent change in sales there will be a 1.5 percent change in EPS

Question

Quizplus · Accepted Answer

A degree of operating leverage (DOL) of 1.5 times means that for every 1 percent change in sales, there will be a 1.5 percent change in earnings before interest and taxes (EBIT). It measures the percentage change in EBIT relative to the percentage change in sales. DOL allows a company to determine the impact of changes in sales volume on its EBIT.

A Degree of Operating Leverage of 1