Glossary
Technical Foundations
Operating Leverage
A company’s operating leverage measures its fixed costs as a proportion of total costs. Companies with high operating leverage by definition have a large percentage of fixed costs in their cost base so need to generate high and constant sales revenue to cover their fixed cost base, which may create less flexibility around pricing. Companies with low operating leverage (i.e. those where most costs are variable) are under less sales pressure but make less profit per sale.