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
Financial Leverage Definition
Financial leverage is a metric that describes how well a company is performing relative to it’s interest earnings. In other words, the ratio of EBIT to EBT.
Financial Leverage Example
How to calculate financial leverage?
- First, determine the EBIT.
Measure the total earnings before interest and tax.
- Next, determine the EBT.
Measure the total earnings before tax only.
- Finally, calculate the financial leverage.
Calculate the financial leverage using the equation above.
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.