Combined Leverage
Short definition
Combined leverage is operating times financial leverage: the compound effect of a sales change on net income/EPS. When both layers are high, a small top-line miss hits profit and covenants together.
Detailed explanation
DCL ≈ DOL × DFL. A sales drop first hits EBIT, then net income through the interest load. Fixed operations plus high debt is a double fixed-cost stack.
Management sometimes cuts operating leverage (tolling) and grows with debt, or the reverse; DCL shows that net risk did not vanish. Sector margins and the rate regime change the product.
Why it matters for the CFO
A budget that assumes “sales −5%, profit −5%” has ignored both DOL and DFL.
How to read it
DCL = 4 implies a 10% sales drop is roughly a 40% net-income drop — linear, other things equal. Price, mix and a rate shock break that line.
Related calculators
Güven Sayılgan’s writing on this topic
Leverage Degrees in Firms and Sector-Specific Warning Points for CFOs
Leverage raises the sensitivity of EBIT and net profit to sales through borrowing and fixed costs; DOL, DFL, DCL, Net Debt/EBITDA, and interest coverage should
6 min read
Read → FinansHow Should Firms Be Financed in a High-Interest Environment? 15 Core Principles
In a high-interest environment, financing decisions must be made with greater care. Fifteen principles for assessing cost, maturity, currency, and cash-flow eff
3 min read
Read →Read these first
Related terms
What to learn next
Definitions are educational. They are not investment, credit or tax advice.