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A high DOL reveals that the company's fixed costs exceed its variable costs. It indicates that the company can boost its operating income by increasing its sales.

Generally speaking, high operating leverage is better than low operating leverage, as it allows businesses to earn large profits on each incremental sale. Having said that, companies with a low degree of operating leverage may find it easier to earn a profit when dealing with a lower level of sales.

The higher the degree of operating leverage (DOL), the more sensitive a company's earnings before interest and taxes (EBIT) are to changes in sales, assuming all other variables remain constant. The DOL ratio helps analysts determine what the impact of any change in sales will be on the company's earnings.

Companies with high operating leverage must cover a larger amount of fixed costs each month regardless of whether they sell any units of product. Low-operating-leverage companies may have high costs that vary directly with their sales but have lower fixed costs to cover each month.

The DOL ratio helps analysts determine what the impact of any change in sales will be on the company's earnings. Operating leverage measures a company's fixed costs as a percentage of its total costs.

Degree of Operating Leverage measures the sensitivity of a company's operating income with changes in sales; a higher DOL implies a higher proportion of fixed cost in the business operations, whereas lower DOL implies lower fixed cost investment in running the business.

Is a high DOL good or bad? It depends. A high DOL can be good if a company is expecting an increase in sales, as it will lead to a corresponding operating income increase. However, a high DOL can be bad if a company is expecting a decrease in sales, as it will lead to a corresponding decrease in operating income.