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Total Leverage – Meaning, Formula, Calculation & Interpretations [Video]

Total Leverage – Meaning, Formula, Calculation & Interpretations

This Total Leverage tutorial covers everything there is to know about Total Leverage, including what it means, how to calculate it, and how to interpret the results. We will also demonstrate how to compute Total Leverage in Excel using the Colgate Case Study.
You can download the Colgate Total Leverage template from this link – https://www.wallstreetmojo.com/ratio-analysis-template/

What is Total Leverage?
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The percentage change in Net profit compared to Sales is known as Total Leverage. Total Leverage is a metric that determines how sensitive Net Income is to changes in Sales.

Formula
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Total Leverage Formula = % change in Net Profit / % change in Sales
= Operating Leverage x Financial Leverage

Interpretation
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– More sensitivity could be due to higher Operating Leverage (higher fixed costs) and Financial Leverage (higher debt).
– To determine total leverage, 3-10 years of data should be used.

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