Operating leverage may be defined as the potential use of fixed operating costs to magnify the effects of changes in sales on the firm's earnings before interest and taxes (EBIT).

Question

Quizplus · Accepted Answer

This is the correct definition of operating leverage. Fixed operating costs can increase a firm's profitability when sales are increasing, but may also result in greater losses when sales are declining.

Operating Leverage May Be Defined as the Potential Use of Fixed