Definition: What is the Operating Leverage Ratio?
Operating Leverage is the financial efficiency ratio. This ratio shows the efficiency of fixed cost to generate the profits by calculating, what percentage of total costs are made up of fixed costs and variable costs.
As compare to variable cost if the fixed costs higher in proportion then the company generate a high operating leverage ratio. In this case from the incremental sale, the firm will generate a high profit.
If the variable cost is high then the company generating the low profit and have low operating leverage ratio.
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