Define the operating leverage effect, Financial Management

What is the operating leverage effect and what causes it?  What are the potential benefits and negative consequences of high operating leverage?

The phrase operating leverage effect is the phenomenon whereby a small change in sales triggers a comparatively large change in operating income.  It is origin by the existence of fixed operating costs.  The potential advantages are that if sales are rising operating income will increase more quickly.  The negative consequences are that falling sales will cause operating income to fall more rapidly, involving negative values.

Posted Date: 5/7/2013 8:44:59 AM | Location : United States

Related Discussions:- Define the operating leverage effect, Assignment Help, Ask Question on Define the operating leverage effect, Get Answer, Expert's Help, Define the operating leverage effect Discussions

Write discussion on Define the operating leverage effect
Your posts are moderated
Related Questions
N egotiation You can also negotiate with the bidders based on the requirements as mentioned below. You can negotiate only with the lowest evaluated responsive and qualified


What does the “weight” refer to in the weighted average cost of capital? The weight considered to in weighted average cost of capital consider the portion of the total capital in

Public Financial Statements of a Company The final exercise is the valuation of a publicly held company's equity. You must base your valuation on the company's public financia

Significance of cost of capital

Question: Susan started her current job at age 30, with the normal retirement age at 60. The remuneration package of her employment includes the following benefits on top of he

Q. Working Capital as a Percentage of Net Sales? This approach to estimate the working capital requirement is based on the fact that the working capital for any firm is directl

Q. Three-phase source voltages and phase sequence? The elementary three-phase, two-pole generator shown in Figure has three identical stator coils (aa, bb, and cc) of one or

Q. Explain about Death Benefit? Death Benefit - Amounts received under a life insurance contract and paid by reason of death of the insured. (Even though most death benefits ar

Name two patterns of cash flows for a share of common stock. How does the market determine the value of the most common cash flow pattern for common stock? Cash flows for a sha