Capital Structure Interview Question:

What does high/low operating leverage indicate?

Submitted by: Administrator

Operating leverage indicate about the company and its future profitability. It also help in assessing the level of risk which has been offered to the investors. Through this investors can estimate the profitability under certain conditions. High operating leverage indicates profits and it tells about the company's more money making policies from each additional sale if the increase cost doesn't increase to produce more sales whereas low operating leverage indicate the declining of profit margins and decreasing in earnings.
Submitted by: Administrator