Causing profits to increase and decrease sharply with respect to sales, operating leverage can cut both ways
Last updated: 08-Jul-2024•Rajan Gulati
Recently, Hero Motocorp and Eicher Motors, two of India's largest automobile manufacturers, blamed weak operating leverage for a fall in their operating margins. So what's operating leverage? Simply stated, operating leverage measures the degree to which a firm or a project can increase its operating income by increasing its revenues. It is used to quantify a company's operating risk. This risk arises due to the structure of fixed and variable costs. A company with high operating leverage has
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