%Change in EPS

DFL =

%Change in EBIT

= ( EPS/ EBIT)*(EBIT/EPS)

Now,

EPS =

PAT PD N

(Where, N = No. of common shares, PAT = Profit after Tax & PD = Preference Dividend) And, PAT = (EBIT INT) * (1 T) where T = tax rate, INT = interest

So,

EPS =

(EBIT INT)* (1 T) PD N (since Interest and Preference Dividend are constants)

Therefore, EPS = [(I T)* EBIT]/N EPS/ EBIT = (1 T)/N

Hence

DFL =
=>

(1 T) * EBIT N * EPS

(1 T) * EBIT N * [(EBIT INT)* (1 T) PD] N

Therefore,

DFL =

EBIT EBIT INT PD/ (1 T)