The Operating Leverage And DOL

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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.


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