A rough idea of a firm's operating leverage can tell you a lot about a company's prospects.Operating leverage boils down to an analysis of fixed costs and variable costs.Operating leverage is highest in companies that have a high proportion of fixed operating costs in relation to variable operating costs. This kind of company uses more fixed assets in the operation of the company. Companies with high operating leverage can make more money from each additional sale if they don't have to increase costs to produce more sales. In good times, high operating leverage can supercharge profit. A company with a greater ratio of fixed to variable costs is said to be using more operating leverage.
Apr 4th, 2015
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