Desde Investopedia

TERM OF THE DAY

Operating Leverage Operating leverage is a measurement of the degree to which a firm or project incurs a combination of fixed and variable costs. A business that makes sales providing a very high gross margin and fewer fixed costs and variable costs has much leverage. The higher the degree of operating leverage, the greater the potential danger from forecasting risk, where a relatively small error in forecasting sales can be magnified into large errors in cash flow projections.

Breaking it Down: Operating leverage may be used for calculating a company’s breakeven point and substantially affecting profits by... Read More