Next video:
Loading the player...

Operating leverage is the relationship between a company's fixed and variable costs.

A company with high operating leverage will see its profits go up when its ticket sales increase, because fixed costs remain the same. Likewise, a company with low operating leverage in a declining sales period must still pay its fixed costs, and it will thus suffer bigger losses.

The degree of operating leverage (DOL) of a firm measures how well a company generates profit using its fixed costs.

Related Articles
  1. Investing

    Operating Leverage Captures Relationships

    Find out how fixed and variable costs interact to shed new light on old companies.
  2. Personal Finance

    Borrowing Smart In A Debt-Filled World

    Leveraging your money can have many perks, but it's not always the smartest financial plan.
  3. Investing

    Explaining Leveraged Loans

    Leveraged loans are loans extended to companies or people who already have large amounts of debt.
  4. Trading

    How Much Leverage Is Right for You in Forex Trades

    It isn’t economics or global finance that trip up first-time forex traders. Instead, a basic lack of knowledge on how to use leverage is at the root of trading losses.
  5. Financial Advisor

    Why Leveraged ETFs Are Not a Long-Term Bet

    Leveraged ETFs aren't for the average investor. They can, however, present significant upside potential for the right type of trader.
  6. Trading

    Forex Leverage: A Double-Edged Sword

    Find out how this flexible and customizable tool magnifies both gains and losses.
  7. Financial Advisor

    Understanding The Leverage Ratio

    Learn more on how the leverage ratio is used to calculate a company's ability to meet financial obligations and how changes in output will affect operating income.
  8. Investing

    Reinvesting Capital Gains In Leveraged Portfolios

    Don't get forced into action. Learn how to plan properly to avoid making rash decisions.
  9. Small Business

    Financial Leverage In Corporate Capital Structure

    Corporate management uses financial leverage to increase earnings per share and return-on-equity.
  10. Investing

    Leverage's "Double-Edged Sword" Need Not Cut Deep

    Learn to cut out losses quickly, leaving profits room to grow.
Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Blue Chip

    A blue chip is a nationally recognized, well-established, and financially sound company.
  3. Payback Period

    The length of time required to recover the cost of an investment. The payback period of a given investment or project is ...
  4. Collateral Value

    The estimated fair market value of an asset that is being used as loan collateral. Collateral value is determined by appraisal ...
  5. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  6. Current Account

    The difference between a nation’s savings and its investment. The current account is defined as the sum of goods and services ...
Trading Center