Degree of Combined Leverage

The degree of combined leverage (DCL) is a measure of a company's financial leverage. It is calculated by multiplying the company's debt-to-equity ratio by its operating leverage. The DCL can be used to assess a company's risk and its ability to generate profits.

A high DCL indicates that a company is using a lot of debt to finance its operations. This can be risky, as it means that the company is more vulnerable to interest rate changes and economic downturns. However, a high DCL can also lead to higher profits, as the company can use its debt to finance growth.

The DCL is calculated as follows:

DCL = Debt-to-Equity Ratio * Operating Leverage

Where:

• Debt-to-Equity Ratio is the ratio of a company's debt to its equity.
• Operating Leverage is the ratio of a company's operating income to its sales.

A company with a high debt-to-equity ratio and a high operating leverage will have a high DCL. This means that the company is using a lot of debt to finance its operations and that it is also generating a lot of profits.

The DCL can be used to assess a company's risk and its ability to generate profits. A high DCL indicates that a company is more risky, as it is more vulnerable to interest rate changes and economic downturns. However, a high DCL can also lead to higher profits.

The DCL is a useful tool for investors and analysts to assess a company's financial health. However, it is important to note that the DCL is only one factor to consider when evaluating a company. Other factors, such as a company's cash flow and its competitive position, should also be considered.