A company with high operating leverage will generally experience which effect when sales change?
Correct answer: B. A larger percentage change in EBIT
- A. A smaller percentage change in EBIT
- B. A larger percentage change in EBIT
- C. No change in fixed operating cost
- D. A direct fall in financial risk
Explanation
Operating leverage results from fixed operating costs such as rent and depreciation. Because these costs do not change directly with sales, a change in sales can produce a larger percentage change in operating profit, or EBIT.
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