If The Tower of Pizza has a cash flow degree of operating leverage equal to 1.15, then a 20 percent increase in revenue should drive a 35 percent increase in pretax operating cash flow.

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) indicates the percentage change in operating cash flow for a given percentage change in sales. A DOL of 1.15 means that a 20% increase in revenue would lead to a 23% increase in pretax operating cash flow (1.15 x 20% = 23%), not 35%.

If the Tower of Pizza Has a Cash Flow Degree