Enter the total EBIT and EBIT minus interest into the calculator. The calculator will evaluate and display the financial leverage.

Financial Leverage Formula

The following equation can be used to calculate the financial leverage of a company. 

FL = EBIT / (EBT)
  • Where FL is financial leverage
  • EBIT is the earnings before interest and tax
  • EBT is the earning before tax only

To calculate the financial leverage, divide the earnings before interest and tax by the earnings before tax only.

Financial Leverage Definition

Financial leverage is a metric that describes how well a company performs relative to its interest earnings. In other words, the ratio of EBIT to EBT.

Financial Leverage Example

How to calculate financial leverage?

  1. First, determine the EBIT.

    Measure the total earnings before interest and tax.

  2. Next, determine the EBT.

    Measure the total earnings before tax only.

  3. Finally, calculate the financial leverage.

    Calculate the financial leverage using the equation above.

FAQ

What is financial leverage?

Financial leverage is a ratio of the total earnings before tax and interest to the total earnings before tax only. In other words, the ratio of the earnings that come from interest compared to the earnings from other sources.