In This Chapter
The concepts of operating leverage and financial leverage are key to understanding how fluctuating market conditions will affect its profitability.
A company is said to be leveraged when it incurs either fixed operating costs, referred to as operating leverage, or fixed capital costs, referred to as financial leverage.
A company’s degree of operating leverage is a function of its sales, its fixed and its variable operating expenses such as the following costs:
Fixed manufacturing costs such as equipment leases
Fixed selling costs such as the salaries of sales support staff
Fixed administrative costs such as that ...