A company with a high operating leverage will experience a large percentage change in operating income as a result of a small percentage change in sales.

Question

Quizplus · Accepted Answer

Operating leverage refers to the degree to which a company's costs are fixed versus variable. A high operating leverage means that a large proportion of a company's costs are fixed, such as rent, salaries, and equipment. As a result, a small increase in sales can lead to a significant increase in operating income, as the fixed costs are spread over a larger revenue base. Conversely, a small decrease in sales can lead to a significant decrease in operating income. Therefore, a company with high operating leverage is more sensitive to changes in sales volume.

A Company with a High Operating Leverage Will Experience a Large