Series 79: Operating Leverage

Taken from our FINRA Investment Banking Exam

Definition of the term Operating Leverage...

the degree to which a company’s costs consist of fixed costs that do not increase as sales increase. Companies with high operating leverage experience a greater increase in profit margins as sales increase, but also a greater decrease in profit margins as sales decrease. The simplest measure of operating leverage is the ratio of fixed costs to total (fixed and variable) costs. Another measure is degree of operating leverage (DOL).

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