Quick Definition

Operating leverage is a measure of how sensitive a company's operating income is to changes in its sales volume, highlighting the impact of fixed costs on profitability.

Formula

Examples

• 1A manufacturing company with high fixed costs for machinery experiences significant increases in profit with each additional unit sold.
• 2A software company with high development costs but low ongoing expenses sees substantial profit margins as sales increase.
• 3A retail store with fixed costs like rent and salaries benefits disproportionately from seasonal sales spikes.

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