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Total leverage effect definition

Description

Total leverage effect (TLE) is calculated by multiplying two other ratios. One of them is OLE (operating leverage effect) and the other is FLE (financial leverage effect). This ratio helps to evaluate an addition risk of business.

Norms and limitations

There are no general norms for this ratio.

It is recommended to compare this ratio with the ratios of companies working within the same industry.

Formula

By multiplying the OLE and FLE, we get the total leverage effect (TLE), which is defined as: Total leverage effect = OLE * FLE.