Finance Lab
A formula is not a fact. It is a decision.
Each experiment walks the same six stages: read the formula, understand what it claims, manipulate the variables, observe the sensitivity, solve for a target, then apply it to a decision.
Corporate Finance
Operating and financial leverage
DCL = DOL × DFL
Leverage measures how sensitive profit is to a change in sales. Fixed operating costs create operating leverage; debt creates financial leverage.
What each symbol means
- Units sold
- Volume in the period.
- Price per unit
- Average selling price.
- Variable cost / unit
- Direct cost of one unit.
- Fixed operating costs
- Overheads independent of volume.
- Interest expense
- Fixed financing cost.
- Tax rate
- Effective tax rate.
- Shares outstanding
- Shares used for EPS.