The inability of the company to cover it’s the cost can not be separated from the company is not able to manage the risks involved with both, including business risk and financial risk. Where the business risk and financial risk is to use the concept of leverage. Degree Operating Leverage (DOL) and Degree Financial Leverage (DFL) is also required if the lack of funds from equity (own capital). And profitability with the company’s goal to maximize the expected profit on the Return on Equity (ROE).
The purpose of this study is to determine the degree of operating leverage during the period of the study, to determine the degree of financial leverage over the period of the study, to determine the return on equity during the period of study, and to determine the effect degree of operating leverage and degree of financial leverage on return on equity.
In this study, using research explanations (explanation research) with the quantitative approach using a statistical test. Research description (explanation research) is a type of study where researchers explain causal relationships between variables through hypothesis testing, ie test hypotheses based on the theory that has been formulated earlier and later have been obtained further calculated through a quantitative approach using a statistical test. This research was conducted by way of explaining the symptoms caused by an object of research. The analysis used the partial correlation analysis and simple linear regression analysis, in which the independent variable (X) is the degree of operating leverage and degree of financial leverage and the dependent variable (Y) is the return on equity.
Keywords : Degree Operating Leverage, Degree Financial Leverage, and Return on Equity