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 ?
Carmakers, in order to reduce operating leverage risk, have been systematically pushing off capital investment requirements to their suppliers.
In the case of Zurich-American (ZA), it is expected that ZA, by virtue of this agreement, will significantly increase its premium writings and operating leverage through the underwriting of substantial renewal business associated with The Home's insurance clients in the second quarter of 1995.
Best's Perspective on Operating Leverage (updates version dated Nov.
The rating reflects the company's excellent profitability, superb distribution system, conservative operating leverage and high quality asset portfolio.
I think AMI has tremendous potential and I am confident in the future success of our plans to increase gross margins and improve operating leverage.
New business growth has caused operating leverage as measured by the ratio of adjusted liabilities to adjusted surplus to grow rapidly over the last three years.
The improvement was a result of better operating leverage related to sales growth and TNB's ability to raise prices to offset higher material and energy costs.
The rating reflects the company's conservative operating leverage and good quality investment portfolio.
Also below rating expectations is the companies' high operating leverage of more than 25 times (x), stemming from rapid premium growth and a concentration in fixed annuities (a product that Fitch views as having inherently higher risk attributes than traditional life products).
This very high rating reflects Security Benefit's focused marketing orientation and significant presence in the variable annuity market, strong profitability, high quality assets with favorable liquidity, and improving operating leverage.
The 'AA-' IFS rating of Alfa Group is, in part, based on Alfa Group's strong capitalization characterized by high risk based capital (RBC) ratios and low operating leverage ratios.
This rating action is based on Liberty Life's history of operating success in niche insurance market segments, as well as, the company's conservative investment portfolio, and reasonable utilization of operating leverage.