Whenever the percentage change in earnings before interest and taxes resulting from a given percentage change in sales is greater than the percentage change in sales, operating leverage exists.

Question

Quizplus · Accepted Answer

This statement is a correct definition of operating leverage. When a company has high fixed costs, a small increase in sales can lead to a significant increase in earnings before interest and taxes (EBIT), resulting in a higher level of operating leverage.

Whenever the Percentage Change in Earnings Before Interest and Taxes