operating leverage

(redirected from Operating Leverages)

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 ?
The objective of the paper is to recognize the impact and relationship between the financial and operating leverages on firm's profitability of the consumers' product companies of Pakistan.
(2012) the sum of fixed cost to total costs and operating leverages are directly proportional.
The aim of the study is to recognize the relationship and impact of the financial and operating leverages on firm's profitability of the consumers' product companies of Pakistan.
Keywords: financial leverage, operating leverage, Return on assets, Return on equity, Net Profit.
To investigate the impact of financial and operating leverage on profitability, return on the owner's equity (ROE), return on assets (ROA) and net profit.
Firm financial performance is considered as dependent variables and in depended on the financial and operating leverage.
The above table shows that Net Profit ratio (Mean =0.3019, SD=0.32377) has the lowest skewness (0.563), and Operating Leverage (Mean = 1.8963, SD= 4.71445) has the highest skewness (3.754).
The above table shows the relationship between the dependent variables (Return on Assets, Return on Equity and Net Profit) to independent variable Operating Leverage. The relationship between financial leverage and Return on Assets is 0.044.
Ho: There is no influence of leverages (Operating Leverage and financial Leverage) on net profit in consumers' product companies.
HA: There is influence of leverages (Operating Leverage and financial Leverage) on net profit in consumers' product companies.
The coefficient table expounds the beta values of the dependents variable Net Profit (NP) to independent variables FL (Financial Leverage) and OL (Operating Leverage) by using Least Square.
The coefficient table expounds the beta values of the dependents variable ROE (Return on Equity) to independent variables FL (Financial Leverage) and OL (Operating Leverage) by using Least Square.