AMRITSAR COLLEGE OF ENGINEERING AND

TECHNOLOGY
DEPARTMENT OF MANAGEMENT STUDIES

LEVERAGE

Submitted to:- Submitted By:-

Ms. Ridhim Pathak Maninder Kaur(2217026)
(Assistant Prof) Manpreet Kaur(2217027)
Meenakshi (2217028)
Megha Arora (2217029)
Mishu (2217030)
OPERATING LEVERAGE
Operating leverage is concerned with the cost
structure of a firm, i.e., the existence of fixed
nature of cost. It results when the firm has
fixed cost which can be recovered
irrespective of changes in sales volume.
Where the change in operating profits after
changing fixed cost is greater than the
percentage change in sales, the occurrence
is known as operating leverage.
CHARACTERISTICS OF OPERATING
LEVERAGE
Related to fixed costs : If there are fixed
costs in the firm, there will be operating
leverage and if there are no fixed costs, there
will be no operating leverage.
Highest operating leverage near Break-even
point:
There is direct relationship between operating
profit and break-even point. The degree of
operating leverage is highest near BEP.
SIGNIFICANCE OF OPERATING LEVERAGE

• Operating leverage tells the impact of sales on

income.
• A given percentage increase in sales results in
higher percentage of increase in operating
income and net profit.
• A decline in sales may wipe out the operating
profits or turn into loss.
•If fixed cost were higher, the operating leverage as
well as operating risk of the firm would be higher.