Operating Leverage Calculator
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Operating leverage measures how sensitive a company's operating profit is to changes in revenue. High fixed costs relative to variable costs create high operating leverage — a small revenue increase produces a large profit increase, and vice versa.
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Tip: High operating leverage is a double-edged sword. It amplifies gains in good times but magnifies losses in downturns. Companies with high leverage need conservative balance sheets.
- 1Operating leverage = % change in operating profit / % change in revenue
- 2Or: Contribution margin / Operating profit (EBIT)
- 3High fixed costs → higher leverage → more risk and reward
- 4Low fixed costs (more variable) → lower leverage → more stable but less upside
Revenue up 10% → Operating profit up 30%=Operating leverage = 3xEvery 1% revenue change → 3% profit change
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Fun Fact
Airlines have extremely high operating leverage — fixed costs (aircraft, staff, gates) are massive. A 5% revenue drop from an empty seat can wipe out most profit; a 5% increase can double profits.
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