Comment on the following scenario:
British Sky Broadcasting Group plc (Sky), the satellite television broadcaster, is an obvious example of a business with high operating gearing. Nearly all of its costs are fixed in that they do not vary with the number of subscribers that it has or the value of its advertising revenues. This means that any increase in total revenues is likely to have a strong favourable effect on profit. The business acknowledged this in its 2005 annual report where it said: ‘These figures highlight the operational gearing of our business and the profitability of adding new subscribers', before going on to explain how an 11 percent increase in revenue (from £3,656m to £4,048m) led to an increase of 34 per cent in operating profit (from £600m to £805m).