Typically, firms with a higher degree of operating leverage have an increased risk of failure due to a high level of debt.

Question

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Operating leverage refers to the amount of fixed costs that a firm has relative to its variable costs. When a firm has a higher degree of operating leverage, it means that a larger percentage of its costs are fixed rather than variable. This can lead to greater profitability when sales are high, but it also means that when sales are low, the firm still has to pay those fixed costs, which can put it at risk of defaulting on its debt obligations. Therefore, firms with a high degree of operating leverage are generally considered to have an increased risk of failure due to their higher level of debt.

Typically, Firms with a Higher Degree of Operating Leverage Have