Important Formula

The Degree Of Operating Leverage Is Computed As. Operating leverage acts as a multiplier; The degree of operating leverage is calculated by dividing the percentage change of a company's earnings before interest and taxes (ebit) by the percentage change of its.

Percent change in operating income divided by percent change in unit volume. Should be computed only over a profitable range of operations. Only statement iii is true.

Companies With High Operating Leverage. Estimating the company’s revenues and cash flows. High operating leverage magnifies gains and losses.

High operating leverage magnifies gains and losses. Companies with a high degree of operating leverage (dol) have a greater proportion of fixed costs that remain relatively unchanged under different production volumes, whereas those with low operating leverage have cost structures comprised of comparatively more variable costs that are directly tied to production volume. Companies with high gross margins and low variable costs have high operating leverage ratios.