In general, the greater the firm's operating leverage, the higher its business risk.

Question

Quizplus · Accepted Answer

Operating leverage is defined as the degree to which a company uses fixed costs rather than variable costs in its operations. When a company has a high proportion of fixed costs, a small change in sales can result in a significant change in profits. This means that if sales decline, the company will still have to cover its fixed costs, which increases its business risk. Therefore, the greater the firm's operating leverage, the higher its business risk.

In General, the Greater the Firm's Operating Leverage, the Higher