Operating leverage contributes ultimately to the variability of a firm's earnings per share.

Question

Quizplus · Accepted Answer

Operating leverage refers to the proportion of fixed costs in a firm's cost structure. A higher degree of operating leverage means that a larger portion of the firm's costs are fixed, which in turn magnifies the impact of changes in sales on the firm's earnings. As a result, firms with higher operating leverage are more susceptible to fluctuations in earnings per share. Therefore, option A is true.

Operating Leverage Contributes Ultimately to the Variability of a Firm's