a degree of financial leverage dfl is a leverage ratio that measures the sensitivity of a company s earnings per share eps to fluctuations in its operating income as a result of changes in its capital structure the degree of financial leverage dfl measures the percentage change in eps for a unit change in operating income also known as earnings before interest and taxes ebit 
this ratio indicates that the higher the degree of financial leverage the more volatile earnings will be since interest is usually a fixed expense leverage magnifies returns and eps this is good when operating income is rising but it can be a problem when operating income is under pressure 1the formula for dfl is dfl change in eps change in ebit text dfl frac text change in eps text change in ebit dfl change in ebit change in eps dfl can also be represented by the equation below dfl ebit ebit interest text dfl frac text ebit text ebit text interest dfl ebit interestebit 