Definition
Combined leverage measures total sensitivity of earnings per share to revenue changes. It multiplies operating leverage by financial leverage. High combined leverage means small revenue changes cause large EPS swings, increasing both upside potential and downside risk.
Formula
Degree of Combined Leverage = DOL × DFL = % Change in EPS / % Change in Revenue
Example
With 3x operating leverage and 1.5x financial leverage, combined leverage is 4.5x. A 10% revenue increase could generate 45% EPS growth.
FAQ
What is Combined Leverage (Total Leverage)?
The combined effect of operating and financial leverage.
How do you calculate Combined Leverage (Total Leverage)?
A common formula for Combined Leverage (Total Leverage) is: Degree of Combined Leverage = DOL × DFL = % Change in EPS / % Change in Revenue
Why is Combined Leverage (Total Leverage) important?
Combined Leverage (Total Leverage) helps investors evaluate profitability and make more informed decisions.