A company with high operating leverage will experience a larger reduction in net operating income in a period of declining sales than a company with low operating leverage.

Question

Quizplus · Accepted Answer

A company with high operating leverage has a higher proportion of fixed costs in their cost structure, meaning that a reduction in sales will have a larger impact on their net operating income compared to a company with low operating leverage, which has a higher proportion of variable costs. Therefore, a company with high operating leverage will experience a larger reduction in net operating income in a period of declining sales than a company with low operating leverage.

A Company with High Operating Leverage Will Experience a Larger