Operating leverage

From CNM Wiki
Revision as of 20:27, 10 July 2020 by QiratH (talk | contribs)
(diff) ← Older revision | Latest revision (diff) | Newer revision → (diff)
Jump to: navigation, search

Operating leverage is the extent to which fixed costs are used in a firm's operations. If a high percentage of a firm's total costs are fixed costs, then the firm is said to have a high degree of operating leverage. Operating leverage is a measure of one element of business risk but does not include the second major element, sales variability.


Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

Operating leverage. The extent to which fixed costs are used in a firm's operations. If a high percentage of a firm's total costs are fixed costs, then the firm is said to have a high degree of operating leverage. Operating leverage is a measure of one element of business risk but does not include the second major element, sales variability.

According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),

Operating leverage. The extent to which fixed costs are used in a firm's operations.

According to Cost Accounting by Horngren, Datar, Rajan (14th edition),

Operating leverage. Effects that fixed costs have on changes in operating income as changes occur in units sold and hence in contribution margin.

Related concepts

Related lectures