About the Operating Leverage Ratio Calculator
What is the Operating Leverage Ratio Calculator?
Operating leverage measures how much operating profit swings when sales change. Businesses with high fixed costs have high leverage: profits rise fast in good times and fall fast in bad times.
Enter sales, variable costs and fixed costs to get the degree of operating leverage (DOL) and the impact of your expected sales change on EBIT.
How to use the Operating Leverage Ratio Calculator
- Sales Revenue (₹) (sample: 80,00,000)
- Variable Costs (₹) (sample: 48,00,000)
- Fixed Operating Costs (₹) (sample: 20,00,000)
- Expected Change in Sales (%) (sample: 10)
- Press Calculate Operating Leverage (results also refresh as you type). The result card shows the Degree of Operating Leverage, along with Contribution, Operating profit (EBIT), Change in EBIT for your sales change and New EBIT.
Formula used
DOL = Contribution ÷ EBIT = (Sales − Variable costs) ÷ (Sales − Variable costs − Fixed costs)
- % change in EBIT = DOL × % change in sales
DOL is highest just above break-even and falls as sales grow.
Worked example
These are the sample values already filled in the calculator above, and the result it returns for them:
| Input | Sample value |
|---|---|
| Sales Revenue (₹) | 80,00,000 |
| Variable Costs (₹) | 48,00,000 |
| Fixed Operating Costs (₹) | 20,00,000 |
| Expected Change in Sales (%) | 10 |
| Result | Value |
|---|---|
| Degree of Operating Leverage | 2.67× |
| Contribution | ₹32,00,000 |
| Operating profit (EBIT) | ₹12,00,000 |
| Change in EBIT for your sales change | 26.67% |
| New EBIT | ₹15,20,000 |
Tips for using the Operating Leverage Ratio Calculator
- High operating leverage plus high debt (financial leverage) magnifies risk.
- Converting fixed costs into variable ones – outsourcing, commissions – lowers operating leverage.