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.
To identify the interrelationship between Financial, operating leverage and financial performance of the consumers' product companies in Karachi.
Firm financial performance is considered as dependent variables and in depended on the financial and operating leverage.
The above table shows the relationship between the dependent variables (Return on Assets, Return on Equity and Net Profit) to independent variable Operating Leverage.
Results show that the ROA has a positive relationship with Operating Leverage (OL).
7 million strengthening in third quarter 2002 and further depletes the low levels of surplus still remaining within the operating companies and elevates operating leverages to unacceptable levels.
The Fidelity Title Group has maintained operating leverages consistent with the title industry with a well managed investment portfolio supporting a superior reserve to paid loss ratio.