The higher a firm's operating leverage,the higher is its business risk.

Name: The higher a firm's operating leverage,the higher is its business risk.
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Question

Quizplus · Accepted Answer

Operating leverage refers to the degree to which a firm's fixed costs are used in its operations. The higher a firm's operating leverage, the more sensitive its profits will be to changes in sales volume. Therefore, higher operating leverage increases the variability of a firm's profits and hence, increases its business risk.

The Higher a Firm's Operating Leverage,the Higher Is Its Business