Operating leverage refers to
A) financing a portion of the firm's assets with securities bearing a fixed rate of return.
B) the additional chance of insolvency borne by the common shareholder.
C) the incurrence of fixed operating costs in the firm's income stream.
D) a high degree of variable costs of production.

Question

Quizplus · Accepted Answer

Operating leverage refers to the extent to which a company incurs fixed operating costs in its income stream. A higher degree of fixed costs means higher operating leverage, which can lead to significant changes in profitability and risk as sales levels fluctuate.

Operating Leverage Refers to