In general, compared to a company with no leverage, a company with high operating leverage will have
A) Lower operating profits in periods of high sales
B) No difference in operating profits, regardless of the level of sales
C) Higher operating profits in periods of high sales

Question

Quizplus · Accepted Answer

A company with high operating leverage has fixed operating costs that do not change with changes in sales volume. This means that when sales increase, the company's operating profits increase at a faster rate than the sales increase. However, when sales decrease, the company's operating profits decrease at a faster rate than the sales decrease. Therefore, a company with high operating leverage will have higher operating profits in periods of high sales.

In General, Compared to a Company with No Leverage, a Company