Section 4
Thinking About Operating Leverage
Book
Version 3
By Boundless
By Boundless
Boundless Finance
Finance
by Boundless
4 concepts
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Defining Operating Leverage
Operating leverage is a measure of how revenue growth translates into growth in operating income.
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Break-Even Analysis
Break-even analysis tells a company how much it needs to sell in order to pay for an investment.
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Leverage Models
The relationship between fixed and variable costs, when calculated alongside sales volume, enables modeling of operational leverage.
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Benefits and Risks of Operating Leverage
The use of operating leverage can multiply profits when a given break-even point is reached, but it can intensify losses when it is not.