Discussion Post: Operating Leverage
Companies often use leverage to augment profits, please explain the following in detail:
o With regards to Operating Leverage, please explain why a company with HIGH Operating Leverage faces greater financial risk in a declining sales period compared to a company with LOW Operating Leverage. (HINT: The key here is the relation between fixed costs and variable costs.)
o What does a business's Contribution Margin represent? What does the Contribution Margin have to do with Operating Leverage?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.