Letters by Topic
Letters on Operating Leverage
The degree to which a company's costs are fixed rather than variable; high operating leverage means each incremental dollar of revenue drops more straight to operating profit, amplifying earnings growth in good times and losses in bad.
1985·Fixed-cost sensitivity
Businesses with high fixed costs see profits swing widely as volume moves; understand the leverage before judging stability.
2007·Amplification of earnings by fixed costs
A small change in volume can produce a large change in earnings when costs are largely fixed.
Explore the concept
Operating Leverage is one of the ideas behind the ValueOS tools. See it applied to real companies.