Purchase Solution

Operating leverage and the overall risk

Not what you're looking for?

Ask Custom Question

How do fixed costs create operating leverage? Why is this significant? How does operating leverage impact the overall risk level of the company?

Purchase this Solution
Solution Summary

This discusses the impact of operating leverage on the overall risk

Solution Preview

Risk is an aspect of any organization's operation. Business takes risks because it operates in uncertain environment. Some risks cannot be avoided for example systematic risk or external risk. Moreover higher risks lead to the greater return.
Thus if business don't take risks than it will not be able to earn superior profits and thus will not be able to satisfy the shareholders expectations. Hence for earning superior profits business has to take risks. ...

Purchase this Solution
Free BrainMass Quizzes
Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Operations Management

This quiz tests a student's knowledge about Operations Management

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Basics of corporate finance

These questions will test you on your knowledge of finance.

View More Free Quizzes
Related BrainMass Solutions

  • Degree of operating leverage

    292122 Degree of Operating Leverage and Risks Please give your opinion on the following two questions: 1) I feel financial leverage is a better risk than operating risk... 2) The two types of leverage (DOL) and (DFL) are both risky, however, it

  • Effect of Operating Leverage on Company's Risk Position

    revenue less total cost This may soon increase the overall business risk in the Xcompany and can be a great constraint for expanding divisions and production scale in the future.

  • How can a company reduce its weighted average cost of capital?

    The difference between operating and financial leverage is given.

  • firm's business risk

    Thus firms with the high operating Leverage, should use a low Degree of finacial leverage and vice versa; Degree of total leverage should be maintained at a reasonable level. This discusses the concepts related to firm's business risk.

  • Finance : Project Evaluation and Leverage

    Part B: What is the difference between Operating Leverage and Financial Leverage?

  • CAPM approach

    (1) Yes, it does seem appropriate because the unlevered beta, or asset beta and the operating leverage are linked since this beta is determined by both the business in which the company operates and the operating leverage of that company.

  • Operating & Financial Leverage

    What are the similarities and differences between operating and financial leverage? Could you provide some examples? Operating Leverage. Operating leverage is a measure of how sensitive net income is to a given percentage change in sales.

  • Operating leverage and financial leverage

    Thus operating leverage causes operating risk and on the other hand financial leverage causes financial risk.

  • Key Data Regarding Financial Management

    The degree of total leverage is defined as a measure of the total risk of the firm. This leverage is the product of operating and financial leverage. It indicates the percentage change in earning per share due to percentage change in sales.

View More Related Solutions