Operational Leverage
How little costs rise when revenue rises; in businesses with high fixed costs, profit grows faster than revenue as revenue grows.
Strategic IndicatorsTerm 49 / 81
Formula
Degree of operating leverage = % change in operating profit ÷ % change in revenue
In practice
Leverage cuts both ways: when revenue falls, profit shrinks just as fast. A high fixed-cost structure is an advantage when you are confident in the growth forecast and a risk when you are not.