--%>
Assignment Help - homework help

Define operating leverage effect and its cause

Define operating leverage effect and what causes it? Describe potential benefits and negative consequences of high operating leverage?
The operating leverage effect is the phenomenon where a small change in sales triggers a comparatively large change in operating income. It is caused through the presence of fixed operating costs. The potential benefits are that if sales are increasing operating income will rise more rapidly. The negative consequences are that falling sales will cause operating income to fall more rapidly, including negative values.

   Related Questions in Finance Basics

  • Q : Define Cost-of-Living Adjustments

    Cost-of-Living Adjustments (COLA): Increases offered in state-funded programs which comprise periodic adjustments predetermined in state law (statutory, like K-12 education apportionments), or established at optional levels (that is discretionary) by

    		•
  • Q : Describe why measure projects risk as

    Describe why we measure a project's risk as the change in the CV.We measure a project's risk since the change in the coefficient of variation since this focuses on the change in the riskiness of the firm's existing portfolio.

    		•
  • Q : Define Current Year Current Year (CY):

    Current Year (CY): It is a term utilized in budgeting and accounting to designate the operations of the current fiscal year in contrast to past or future periods.

    		•
  • Q : Explain Expenditures by Category

    Expenditures by Category: A budget display, for each and every department, which reflects actual precedent year, estimated present year, and proposed budget year expenses presented by the character of expenditure (example, State Operations and/or Loca

    		•
  • Q : Graphically combined transactions and

    Normal 0 false false

  • Q : Changes in equilibrium GDP caused by

    Normal 0 false false

  • Q : How do financial managers compute the

    How do financial managers compute the average tax rate?Average tax rates are calculated through dividing tax dollars paid by earnings before taxes (EBT).

    		•
  • Q : All rates are stated annually with

    1.      Assume the following (all rates are stated annually with semiannual compounding):

  • Q : Pros and cons of commercial paper

    Describe pros and cons of commercial paper associated to bank loans for a company seeking short-term financing? Usually commercial paper is a cheaper source of short-term financing for a firm, compared to bank loans. Also, a larger amount of fu

    		•
  • Q : Translate enterprise value in net

    Describe the adjustments essential to translate enterprise value to the net present value of common equity.To get the value of the company's common stock, add up the value of the firm's present assets to the enterprise value (this generates the

    		•