Definition for : Operating leverage

Operating Leverage links change in activity (measured by Sales) with change in result (either Operating profit or Net income). Operating Leverage depends on the level and nature of the Breakeven point. Higher operating Leverage will Lead to greater Risk for the company. The Unlevered beta, or Asset beta and the operating Leverage are linked because the Unlevered beta is determined by both the business in which the firm operates and the operating Leverage of the firm.

(See Chapters Chapter 10 Margin analysis: risks and Chapter 31 Valuation techniques of the Vernimmen)

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