"Operating leverage" is the use of fixed costs to magnify returns at high levels of operation.

Question

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Operating leverage refers to the extent to which fixed costs are used in a company's operations. When a company has high operating leverage, small changes in sales or revenues can result in larger changes in profits or earnings per share (EPS). This is because a higher proportion of the costs required to generate those sales or revenues are fixed and do not change with changes in output or activity levels. Therefore, if a company can increase its sales or revenue, it will experience a larger increase in profits or EPS due to the magnification effect of fixed costs.

"Operating Leverage" Is the Use of Fixed Costs to Magnify