Operating Leverage
Also called: degree of operating leverage, fixed cost leverage
Operating leverage is how much profit amplifies a change in revenue, driven by the share of costs that are fixed. A business with high fixed costs and low variable costs — software, airlines, cinemas — sees profit explode as volume rises and collapse as it falls. It's the operational analogue of financial leverage, and the two multiply: a company with both is spectacular in a boom and fragile in a downturn.
Want more than a definition? Learn it in Capital Quarters →