DOL

Degree of Operating Leverage

Short definition

The degree of operating leverage (DOL) is the percentage change in EBIT for a percentage change in sales. It is also contribution margin over EBIT; more fixed operating cost raises DOL.

Detailed explanation

Contribution / EBIT is a local elasticity at the current operating point. Near break-even, EBIT shrinks and DOL heads to infinity, so DOL looks absurdly high around break-even.

The formula holds price and variable cost fixed. Mix, discounting and a capacity ceiling break the elasticity. IFRS 16 splits rent into depreciation and interest, so P&L DOL is not cash leverage.

Why it matters for the CFO

Budget variance and pricing cut profit linearly on a “sales −3%” story if DOL is unknown. A manufacturer and a trader are not comparable on DOL at the same turnover.

How it is calculated

DOL = %ΔFVÖK / %ΔSatış = Katkı payı / FVÖK

The percentage form is between two realised points. Contribution/EBIT is the local slope; contribution = sales − variable cost.

Variables in the formula

• DOL: degree of operating leverage
• %ΔEBIT: percentage change in EBIT
• %ΔSatış: percentage change in sales

How to read it

DOL = 2 means a 10% sales rise implies 20% EBIT — other things equal. There is no sector “target DOL”; asset intensity, contracts and distance from break-even set it. Do not report the figure when EBIT is near zero.

Numerical example

Contribution 40 mn TL, EBIT 10 mn TL → DOL = 4. A 5% sales rise implies 20% EBIT (10 → 12 mn TL) if assumptions hold.

Definitions are educational. They are not investment, credit or tax advice.