operating leverage(redirected from Operating Leverages)
Fixed operating costs, which are characterized as leverage because they accentuate variations in profits.
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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.
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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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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.
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