Define the operating leverage effect, Financial Management

Assignment Help:

What is the operating leverage effect and what causes it?  What are the potential benefits and negative consequences of high operating leverage?

The phrase operating leverage effect is the phenomenon whereby a small change in sales triggers a comparatively large change in operating income.  It is origin by the existence of fixed operating costs.  The potential advantages are that if sales are rising operating income will increase more quickly.  The negative consequences are that falling sales will cause operating income to fall more rapidly, involving negative values.


Related Discussions:- Define the operating leverage effect

What is non - diversifiable risk, What is nondiversifiable risk? How is it ...

What is nondiversifiable risk? How is it measured? If not the returns of one-half the assets in a portfolio are perfectly negatively correlated along with the other half-which

Operating cycle , using the operating cycle and any other financial managem...

using the operating cycle and any other financial management knowledge,discuss the applicabilty of such cycle to poultry

Leverage, ABC Ltd. Produces electronic components with a selling price per ...

ABC Ltd. Produces electronic components with a selling price per of Rs.100. Fixed cost amount to Rs.2,00,000/- 5000 units are produced and sold each year. Annua

How are financial trades made in an over-the-counter market, How are financ...

How are financial trades made in an over-the-counter market? Discuss the role of a dealer in the OTC market. In difference to the organized exchanges, which have physical locat

Brixton plans to sell the applicable computer, Brixton Products is consider...

Brixton Products is considering the purchase of a new $520,000 computer-based entry order system.  The cost of the system will be depreciated on a straight-line basis over its five

Federal agency securities, Federal Agency Securities are those securi...

Federal Agency Securities are those securities issued by federally related institutions and those issued by Government-Sponsored Enterprises (GSE). Securities iss

Add or drop analysis, Add or Drop Analysis Lakespring Retirement Village is...

Add or Drop Analysis Lakespring Retirement Village is home to senior citizens who are fairly independent but need assistance with basic health care and occasional meals. Jill Thomp

Evaluate net present value of machine, Kenneth Su Gold Corp (KSGC) is consi...

Kenneth Su Gold Corp (KSGC) is considering the purchase of a new piece of machinery. The new machinery would cost $80,000. You are given the following facts: The new machine

Extendible reset bonds, Extendible reset bonds are floaters in which ...

Extendible reset bonds are floaters in which the issuer is required to reset the coupon rate so that the issue will trade at a predetermined price (usually above

Explain the role of commission authorities, Explain the Role of commission ...

Explain the Role of commission authorities Competition Directorate is one of the independent public bodies which help ensure healthy competition between companies which then be

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd