What is operating leverage - Definition and Meaning

Operating Leverage :

Operating leverage is the measurement of ratio of company's fixed costs to its variable costs. It helps in assessing the break even point of a business, leverage and operating income. A company with high gross margin and fewer fixed costs and variable costs has less leverage. A firm with higher operating leverage may get more revenue as it does not increase expenses, instead they increase sales.

Formula :

Operating Leverage = quantity x (price - variable cost per unit) / quantity x (price - variable cost per unit) - fixed operating cost
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