operating leverage


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Operating leverage

Fixed operating costs, which are characterized as leverage because they accentuate variations in profits.

Operating Leverage

The level to which a company is dependent on sales of individual products. That is, a company with only a few sales has a high operating leverage because it must use these few sales to pay its operating expenses. On the other hand, a company with many sales has a low operating leverage and may therefore sell more or fewer products without it affecting its profitability as much.

operating leverage

The extent to which fixed operating costs magnify changes in sales or revenues into even greater proportionate changes in operating income. For example, a company that substitutes robots or other machinery for laborers also substitutes fixed costs for variable costs and increases its operating leverage. High operating leverage tends to produce volatile earnings. Compare financial leverage.

operating leverage

The phenomenon of inflation leading to increased income and expenses each year,at the same time that financing (leverage) expenses remain the same if the borrower has fixed-rate financing.The result is that cash flows increase over time.

References in periodicals archive ?
For 2018, State Street sees fee revenue growth on a GAAP basis, which includes TCJA revenue recognition and excludes gain on sales and restructuring charges, of 7%-*%, fee operating leverage 75-150bps, Beacon expense savings of $150M and NII of 10%-13%.
Keywords: financial leverage, operating leverage, Return on assets, Return on equity, Net Profit.
It has, in fact, become a cyclical commonplace, a reflection of the increasingly huge operating leverage of American business.
For example, industries that exhibit high operating leverage and short life cycles, and have discretionary products such as technology, have very high beta measurements.
Carmakers, in order to reduce operating leverage risk, have been systematically pushing off capital investment requirements to their suppliers.