Operating lever refers to the ratio of fixed operating costs to variable operating costs in a company's cost structure. It is a measure that shows how changes in sales levels affect a company's operating profit. Operating leverage is an indicator of a company's operational risk and efficiency in generating profit from available resources. When a company has high fixed operating costs compared to variable costs, it is considered to have high operating leverage. Understanding operating leverage is key to managing a business, as it allows to assess the risks associated with changes in sales levels and pricing and production strategy. Companies with high operating leverage may experience greater fluctuations in profits when the market changes, requiring more careful planning and risk management.
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