Operating Leverage
Content
Definition
Operating Leverage is the degree to which a firm can increase operating income by increasing revenue, reflecting fixed versus variable costs.
Usage and Context
Frequently asked questions
- What does degree of operating leverage mean? The degree of operating leverage measures the sensitivity of a company`s operating income to changes in its sales, indicating how efficiently fixed costs are being used.
- What is meant by operating leverage? Operating leverage refers to the extent to which a company uses fixed costs in its operations, affecting how changes in revenue impact operating income.
- What is meant by operating leverage Quizlet? According to Quizlet, operating leverage is the extent to which a firm can use fixed costs to generate higher profits as sales increase.
Benefits
Operating leverage helps companies understand the impact of cost structure on profitability, aiding in financial planning and decision-making.
Conclusion
Operating Leverage shows the relationship between fixed costs and revenue, indicating how changes in sales can significantly affect operating income and overall profitability.
