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    Operating leverage and the overall risk

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

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    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. ...

    Solution Summary

    This discusses the impact of operating leverage on the overall risk