Discussion Post: Leverage
Companies often use leverage to augment profits. Based on what you learned, explain the following in detail:
a) 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.)
b) What does a business's Contribution Margin represent? What does the Contribution Margin have to do with Operating Leverage?
The response must include a reference list. Using Times New Roman 12 pnt font, double-space, one-inch margins, and APA style of writing and citations.