Operating Leverage
A measurement of the degree to which a firm or project relies on fixed rather than variable costs.
Investopedia Commentary
The higher the degree of operating leverage, the greater the potential danger from forecasting risk. That is, if a relatively small error is made in forecasting sales, it can be magnified into large errors in cash flow projections. If the majority of costs for a company or project are fixed, then the costs will remain high while sales are dropping.
Related Links
Introduction to Fundamental Analysis
See also: Cash Flow, Fixed Cost, Leverage, Variable Cost
operating leverage