Operating leverage is
A) the ratio of net income to sales.
B) the ability of a firm to pay off its debts.
C) the ratio of fixed costs to variable costs.
D) also referred to as working capital.

Question

Quizplus · Accepted Answer

Operating leverage is the extent to which a company relies on fixed costs rather than variable costs. It is the ratio of fixed costs to variable costs. A higher operating leverage means a higher proportion of fixed costs, which can lead to higher profits in good times but also increases risk in bad times. Options A, B, and D are not correct definitions of operating leverage.

Operating Leverage Is