The operating leverage is the fixed cost operating expenses as a percentage of revenue: operating expense/revenue. The operating margin is operating income as a percentage of revenue. So the operating leverage * (1 - operating margin) = 1. The day-to-day expenses incurred in running a business, such as sales and administration, as opposed to production. ...
It can be difficult to forecast operating cash flow from operating revenues for firms with a high operating leverage since small percentage changes in operating revenues can result in large percentage changes in operating cash flow.
Alternative
It may also be revenue as a percentage of operating expenses (revenue/operating expenses).
Cost accounting is the process of tracking, recording and analyzing costs associated with the products or activities of an organization. ... The efficiency ratio of a business is expenses as a percentage of revenue (expenses / revenue) with a few variations. ... In economics, operating margin is the ratio of operating income divided by sales revenue. ...
Operatingleverage is the extent to which a firm uses fixed costs in producing its goods or offering its services.
Recall that operatingleverage is concerned with the relationship between sales and operating profits, and financial leverage is concerned with the relationship between profits and earnings per share.
The degree of total leverage is defined as the percentage change in stockholder earnings for a given change in sales, and it can be calculated by multiplying a company's degree of operatingleverage by its degree of financial leverage.
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