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Effect of Operating Leverage on Company's Risk Position

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Describe how expanding the division with the highest operating leverage would affect the company's risk position.
Based on the degree of operating leverage, how will this impact the risk?

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Explore how expanding the division with the highest operating leverage would affect the company's risk position.

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Answer with graphs is attached below in brainmass.doc file

Operating leverage is the name given to the impact on operating income of a change in the level of output. The operating leverage reflects the extent to which a change in sales affects earnings and a high operating leverage ratio, with a highly elastic product demand, will cause sharp earnings fluctuations. If the ...

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Umut Oltulu, MBA
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  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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