The percentage change in ﬁrm (or project) operating cash ﬂow relative to the percentage change in quantity sold is called (the):
A) Cash ﬂow marginal proﬁt.
B) Degree of operating leverage.
C) Gross proﬁt.
D) Net proﬁt.
E) Financial break-even.

Question

Quizplus · Accepted Answer

The percentage change in firm operating cash flow relative to the percentage change in quantity sold is called the degree of operating leverage (DOL). DOL measures the sensitivity of cash flow to changes in sales volume and indicates how much cash flow will change for every 1% change in sales volume. DOL helps the firm to analyze and manage risks associated with expected changes in sales volumes by understanding how changes in sales will impact operating cash flow.

The Percentage Change in ﬁRm (Or Project) Operating Cash ﬂOw