A ratio that measures how sensitive a company's earnings per share are to changes in operating income, calculated as the percentage change in EPS divided by the percentage change in EBIT. It quantifies the amplification effect of debt on shareholder returns.
Formalized in the 1970s as financial analysts sought to quantify the risk-return tradeoffs of different capital structures. The 'degree' terminology emphasizes that leverage exists on a spectrum, with measurable incremental effects on earnings volatility.
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