Operating leverage
Operating leverage is the extent to which fixed costs are used in a firm's operations. If a high percentage of a firm's total costs are fixed costs, then the firm is said to have a high degree of operating leverage. Operating leverage is a measure of one element of business risk but does not include the second major element, sales variability.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Operating leverage. The extent to which fixed costs are used in a firm's operations. If a high percentage of a firm's total costs are fixed costs, then the firm is said to have a high degree of operating leverage. Operating leverage is a measure of one element of business risk but does not include the second major element, sales variability.
According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),
- Operating leverage. The extent to which fixed costs are used in a firm's operations.
According to Cost Accounting by Horngren, Datar, Rajan (14th edition),
- Operating leverage. Effects that fixed costs have on changes in operating income as changes occur in units sold and hence in contribution margin.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
