What is Operating Leverage?
Operating Leverage A measure of how a percentage change in sales volume affects operating income, due to the presence of fixed costs in a company’s cost structure.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Operating Leverage” Used in Practice?
High operating leverage means that a small increase in sales can lead to a significant rise in operating income, magnifying profits but also increasing risk.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Operating Leverage?
A measure of how a percentage change in sales volume affects operating income, due to the presence of fixed costs in a company’s cost structure.
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