What is the operating leverage effect and what causes it, 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 operating leverage effect is the fact whereby a small change in sales activates a relatively large change in operating income.  It is happened by the presence of fixed operating costs.  The potential paybacks are that if sales are rising operating income will rise more quickly.  The negative penalties are that falling sales will happen operating income to fall more quickly including negative values.

 


Related Discussions:- What is the operating leverage effect and what causes it

Define market value in modigliani miller equation, Define in the Modigliani...

Define in the Modigliani-Miller equation (MM equation), why is the market value of the levered firm greater as compared to the market value of an equivalent unlevered firm? Th

Show internal business risk, Internal business risk associated with the ope...

Internal business risk associated with the operational efficiency of the firm. The operational efficiency differs from company to company. The efficiency of operation is reflected

Explain the bird in the hand theory of cash dividends, Explain the bird in ...

Explain the bird in the hand theory of cash dividends. The bird in the hand dividends theory state that dividends received now are better than a promise of future dividends.  U

Yield spread measures relative to a spot rate curve, Nominal spread o...

Nominal spread of a non-treasury bond can be defined as the difference between the bond's yield and the yield to maturity of a benchmark treasury coupon security.

Explain the term - yield to call, Illustrate the process of calculating cal...

Illustrate the process of calculating call/ put options yields Issuing corporation will use provision if interest rates fall substantially below coupon rates offered on the se

Classification of working capital, Q. Classification of Working Capital? ...

Q. Classification of Working Capital? Classification of Working Capital: - Working Capital is able to be classified in two ways firstly on the basis of concept and secondly on

Alternative dividend policies, The managing directors of three profitable l...

The managing directors of three profitable listed companies discussed their companies'' dividend policies at a business lunch. Company A; has deliberately paid no dividends for th

Valuing semi-annual cash flows, In all previous illustrations, we ass...

In all previous illustrations, we assumed that coupon payments are paid on annual basis. However, most of the bonds carry interest payment semi-annually. Semi-ann

Csae lets.., how would you judge the potential

how would you judge the potential

Leverages, Leverages 'Leverages' are of prime importance in the analysi...

Leverages 'Leverages' are of prime importance in the analysis of a companies' risk. They give a good picture of the business, financial and the overall risk of a company's oper

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