Financial Leverage Ratio Calculator

What Is Financial Leverage Ratio?

Financial leverage ratio evaluates how much debt a business uses to finance its operations relative to shareholder equity and total balance sheet assets. Higher financial leverage indicates higher financial risk and interest obligations, but can amplify return on equity during profitable growth periods.

Financial Leverage Formulas

The primary leverage ratio is the Equity Multiplier:

$$\text{Financial Leverage Ratio} = \frac{\text{Total Assets}}{\text{Total Shareholder Equity}}$$

The Degree of Financial Leverage (DFL) measures EPS sensitivity to changes in operating income (EBIT):

$$\text{DFL} = \frac{\text{EBIT}}{\text{EBIT} - \text{Interest Expense}}$$

Comparing Leverage Metrics

• Debt-to-Equity (D/E): Total Liabilities divided by Total Equity.
• Debt Ratio: Total Liabilities divided by Total Assets (expressed as a percentage).
• Equity Multiplier: Total Assets divided by Equity (part of the 3-step DuPont Analysis model).