Which type of company has the highest operating leverage?

Operating leverage is highest in companies that have a high proportion of fixed operating costs in relation to variable operating costs. This kind of company uses more fixed assets in its operations. Conversely, operating leverage is lowest in companies that have a low proportion of fixed operating costs in relation to variable operating costs.

What is the difference between a high and low operating leverage?

Companies with a high degree of operating leverage (DOL) have a greater proportion of fixed costs that remain relatively unchanged under different production volumes. In contrast, companies with low operating leverage have cost structures comprised of comparatively more variable costs that are directly tied to production volume.

What is operating leverage?

Operating leverage is the ratio of a business's fixed costs to its variable costs. This ratio is often used when forecasting sales and determining appropriate prices. Operating leverage is a cost-accounting formula that measures the degree to which a firm can increase operating income by increasing revenue.