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Topic: Operating leverage

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	Leverage - OPERATING LEVERAGE, FINANCIAL LEVERAGE, TOTAL LEVERAGE, IMPLICATIONS
		Operating leverage is the extent to which a firm uses fixed costs in producing its goods or offering its services.
		Recall that operating leverage is concerned with the relationship between sales and operating profits, and financial leverage is concerned with the relationship between profits and earnings per share.
		The degree of total leverage is defined as the percentage change in stockholder earnings for a given change in sales, and it can be calculated by multiplying a company's degree of operating leverage by its degree of financial leverage.
	www.referenceforbusiness.com /encyclopedia/Kor-Man/Leverage.html (1497 words)

	Vernimmen - Definition of Operating lease - Finance dictionary
		Operating lease is a lease, which is not a finance lease.
		The length of an operating lease is shorter than the economic life of the asset.
		Operating leases are restated as financial debt in consolidated accounts.
	www.vernimmen.com /html/glossaire/definition_operating_lease.html (255 words)

	Operating and Financial leverage
		Operating leverage is the name given to the impact on operating income of a change in the level of output.
		Despite the fact that both operating leverage and financial leverage are concepts that have been discussed and analyzed for decades, there is substantial disparity in how they are defined and measured by academics and practitioners.
		Operating leverage refers to the fact that a lower ratio of variable cost per unit to price per unit causes profit to vary more with a change in the level of output than it would if this ratio was higher.
	www.westga.edu /~bquest/1998/leverage.html (3518 words)

	The Third Form of Leverage
		Leverage, in its simplest sense, is the substitution of a fixed quantity for a variable quantity.
		For example, operating leverage is the extent to which a company's costs of operating are fixed (rent, equipment cost) as opposed to variable (material, direct labor).
		Software leverage is the extant to which a company utilizes existing software in the development of new software.
	homepage.mac.com /sneiderhauser/leverage.html (709 words)

	Operating leverage - Wikipedia, the free encyclopedia
		The operating leverage is the fixed cost operating expenses as a percentage of revenue: operating expense/revenue.
		The operating margin is operating income as a percentage of revenue.
		It can be difficult to forecast operating cash flow from operating revenues for firms with a high operating leverage since small percentage changes in operating revenues can result in large percentage changes in operating cash flow.
	en.wikipedia.org /wiki/Operating_leverage (119 words)

	TheManageMentor - Finance - Understanding leverage
		Operating leverage refers to the impact of a change in the level of output on the operating income.
		The extent to which a business uses fixed costs (compared to variable costs) in its operations is referred to as "operating leverage." When operating leverage is used extensively, there will either be an increase in profits or losses, depending on the volume of sales.
		Financial leverage is the name given to the impact on returns of a change in the extent to which the firm’s assets are financed with borrowed money.
	www.themanagementor.com /enlightenmentorareas/finance/CFA/leverage.htm (462 words)

	The Concept of Operating Leverage
		Operating leverage is a lesser known term or concept.
		A cow-calf enterprise on native range might be an example of a high degree of operating leverage.
		Because of operating leverage the cow-calf operation, with a large fixed cost base, benefited the most from expanding revenues.
	www.noble.org /Ag/Economics/OperatingLeverage/PrintLayout_1_85679_85679.html (643 words)

	Leverage as supplied by EagleTraders.com
		Leverage is used to explain a firm’s ability to use fixed-cost assets or funds to magnify the returns to its owners.
		Total leverage reflects the impact of operating and financial leverage on the total risk of the firm (the degree of uncertainty associated with the firm’s ability to cover its fixed-payment obligations).
		Operating leverage refers to the extent that fixed costs are utilized tin the production process during an operating cycle.
	www.eagletraders.com /advice/securities/leverage.htm (1079 words)

	Chapter 6
		The degree of operating leverage can be used to estimate how a given percentage change in sales volume will affect net income at a given level of sales, assuming there is no change in fixed expenses.
		For example, at the break-even point the degree of operating leverage is infinite since the denominator of the ratio is zero.
		All of the statements in the text about operating leverage and cost structure assume that the companies being compared are identical except for the proportions of fixed and variable costs in their cost structures.
	www.smccd.net /accounts/nurre/online/chtr6.htm (2101 words)

	Practice Quiz
		The degree of operating leverage is a number indicating the relationship between the percentage change in sales to the percentage change in earnings per share.
		Operating leverage is concerned with the use of fixed assets in the business.
		The degree of combined leverage is the sum of the degree of operating leverage and the degree of financial leverage.
	www.mtsu.edu /~nguyen/web_quiz/fin300_hw5.html (612 words)

	Estimating Cost of Capital Using Bottom-up Betas
		The degree of operating leverage is a function of a company’s cost structure, and is usually defined in terms of the relationship between fixed costs and total costs.
		While operating leverage affects betas, measuring the operating leverage of a company is difficult because fixed and variable costs are often aggregated in income statements.
		CHS’s operating leverage of 1.1 and three-year historical growth rate of 25.6 appear to be fairly consistent with the operating leverage and growth rates of the comparable companies.
	www.nysscpa.org /cpajournal/2003/0503/dept/d056603.htm (2484 words)

	Chapter 13 Analysis and Impact of Leverage :Summary
		Operating leverage is the responsiveness of the firm's EBIT to changes in sales revenues.
		The firm's degree of operating leverage from a base sales level is the percentage change in EBIT divided by the percentage change in sales.
		The joint use of operating and financial leverage can be measured by computing the degree of combined leverage, defined as the percentage change in earnings per share divided by the percentage change in sales.
	cai.au.edu /webcourses/config/chapter13/summary13.html (648 words)

	Operating Leverage Captures Relationships
		Operating leverage is highest in companies that have a high proportion of fixed operating costs in relation to variable operating costs.
		Operating leverage can tell investors a lot about a company's risk profile and although high operating leverage can often benefit companies, companies with high operating leverage are also vulnerable to sharp economic and business cycle swings.
		A measure of this leverage effect is referred to as the degree of operating leverage (DOL), which shows the extent to which operating profits change as sales volume changes.
	www.investopedia.com /articles/stocks/06/opleverage.asp (1471 words)

	Operating leverage
		Thus, the benefit of operating leverage which stems from using large fixed assets to automate and to produce a larger quantity at lower unit cost.
		Comparing degrees of operating leverage between companies in the industry with the help of this ratio is not possible because all firms in the industry have different initial sales and profit levels.
		For many firms, automation and increased operating leverage is the natural outcome of a wise management strategy that seeks to exploit all opportunities available to it.
	www.peoi.org /Courses/finanal/ch/ch10d.html (1729 words)

	Jaxworks: Planning For Profit
		The concepts of operating leverage and financial leverage are key to an accurate analysis of a company’s value.
		More specifically, a firm’s degree of operating leverage is the extent to which its operations involve fixed operating expenses such as fixed manufacturing costs, fixed selling costs, and fixed administrative costs.
		Operating leverage is the extent to which a firm’s operations involve fixed operating expenses.
	www.jaxworks.com /lever.htm (1729 words)

	[No title]
		Distinguish between operating leverage and financial leverage. Both operating and financial leverage result in the magnification of changes to earnings due to the presence of fixed costs in a company's cost structure.
		Operating leverage is the magnification on the top half of the income statementSYMBOL 190 \f "Symbol"how EBIT changes in response to changes in sales; the relevant fixed cost is the fixed cost of operating the business.
		Financial leverage is the magnification on the bottom half of the income statementSYMBOL 190 \f "Symbol"how earnings per share changes in response to changes in EBIT; the relevant fixed cost is the fixed cost of financing, in particular interest.
	www.uwosh.edu /faculty_staff/niendorf/Chapter15.doc (2751 words)

	studyfinance.com - Overview: Leverage
		Operating leverage results from the presence of fixed operating costs in a firm's income stream.
		The extent of the presence of fixed operating costs in a firm's income stream is measured by the degree of operating leverage (DOL).
		The disadvantage of having greater degrees of leverage is that because the break-even point is higher, which means that the firm is required to achieve a higher sales volume in order to reach the break-even point.
	www.studyfinance.com /lessons/leverage (377 words)

	Operating and Financial Leverage
		Operating Leverage and Financial Leverage A company’s leverage is divided into two areas, operating leverage and financial leverage.
		A company’s operating leverage is closely tied to its cost structure and its use of fixed and variable costs.
		Operating Leverage: Operating leverage can be examined and defined from the context of accounting and finance.
	www.radessays.com /viewpaper.php?request=24526 (227 words)

	Announcements Page
		Operating leverage is a measure of how sensitive net income is to a given percentage change in sales.
		Thus, providing that there is no change in fixed expenses and the other assumptions of CVP analysis are valid, the degree of operating leverage provides a quick way to predict the percentage effect on profits of a given percentage increase in sales.
		All of the statements in the text about operating leverage and cost structure assume two companies are being compared that are identical except for the proportions of fixed and variable costs in their cost structures.
	www.smccd.net /accounts/Nurre/online/chtr6.html (2357 words)

	Business Financing (Site not responding. Last check: 2007-10-19)
		We saw that financial leverage uses debt to magnify shareholders' return on equity for a business: As the debt-equity ratio increases, return on equity increases for higher sales and profits.
		Instead of depending on the capital structure of the firm, however, operating leverage depends on its cost structure.
		Exhibit C shows that the degree of operating leverage decreases as fixed costs are higher and sales decrease.
	partners.financenter.com /hilliard/learn/guides/smbizfinancing/sboperat_leverage.fcs (622 words)

	Fool.com: EMC's Operating Leverage [Rule Maker] August 14, 2000
		Operating leverage is one of the most important qualities I look for in a Rule Maker business model.
		That's operating leverage -- a unit increase in revenue results in a multi-unit increase in profit.
		Essentially, the operating leverage phenomenon boils down to an analysis of fixed versus variable costs.
	www.fool.com /portfolios/rulemaker/2000/rulemaker000814.htm (899 words)

	Operating Leverage (Site not responding. Last check: 2007-10-19)
		Technically, operating leverage is defined as the percentage change in EBIT divided by the percentage change in sales.
		For example, if you are going to operate a theme park or a ski resort, refine oil into gasoline, or fly a commercial plane between New York and Los Angeles, you are going to have to incur a high level of fixed costs.
		Operating leverage is calculated from a base point (100 toys in the above example).
	campus.murraystate.edu /academic/faculty/larry.guin/FIN330/OperLeverage.htm (1370 words)

	Economic Evaluation of Scale Dependent Technology Investments Production and Operations Management - Find Articles
		For many years, finance scholars have recognized that cost structure affects the financial risk of a firm through its "operating leverage," which is defined as the ratio of variable profits (revenue minus variable costs) to operating profits (variable profits minus fixed operating costs).
		In general, when scale (or other operations decisions that affect revenue or costs) changes, the repercussions include changes in the cost structure, the production volume, the operating leverage, the project cash flow, the riskiness of the project, and finally, present value of risk adjusted cash flow.
		The relationship between a firm's operating leverage and risk, as measured by CAPM's beta parameter, was analytically documented in Rubinstein (1973), Brenner and Schmidt (1978), and Gahlon and Gentry (1982).
	findarticles.com /p/articles/mi_qa3796/is_200504/ai_n13637022 (913 words)

	Operating Leverage Ratio
		The operating leverage ratio is included in the following highlighted financial statement ratio analysis spreadsheets.
		The operating leverage reflects the extent to which a change in sales affects earnings.
		The operating leverage ratio is included in the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio.
	www.bizwiz.ca /operating_leverage_ratio.html (196 words)

	importance of financial leverage and operating leverage
		Operating Leverage is the extent to which fixed assets and associated fixed costs are used in the business.
		The degree of operating leverage (DOL) of a firm is defined as the percentage change in operating income that occurs as a result of a percentage change in sales.
		One caution regarding the use of financial leverage is that beyond a certain level debt may be highly detrimental to a firm.
	www.referenceforbusiness.com /forum/about10.html (635 words)

	Discussion: Operating and Financial Leverage (Site not responding. Last check: 2007-10-19)
		Both types of leverage are strategies that increase the potential profitability of the firm but also increase risk.
		Financial leverage is the use of debt financing to increase return on equity.
		Similarly, operating leverage is the use of automation (or other strategies which increase fixed cost) to reduce variable cost per unit and increase the contribution margin ratio.
	www.swcollege.com /accounting/students/cvp_reso6.htm (224 words)

	Citi expects positive operating leverage - Boston.com
		At the same time, Prince said, a key lieutenant, Robert Druskin, who was named the bank's chief operating officer last month, will look at ways to cut expenses.
		Prince said, for example, that there were too many layers of management in the corporate and investment banking division and too many separate -- and duplicative -- processing operations among consumer units such as mortgage and retail banking.
		Prince said Druskin was focusing on 150 to 200 issues in the company, which has some $1.9 trillion in assets and operates in 100 countries worldwide.
	www.boston.com /business/articles/2007/01/31/citi_expects_positive_operating_leverage (320 words)

	Foundations of Financial Management \| e-Learning Session
		Combined leverage is the extent to which both ____ and ____ is used in a business(Critical Concept).
		The degree of operating leverage (DOL) of a firm is defined as the percentage change in ____ that occurs as a result of a percentage change in sales(Key Term).
		The degree of combined leverage allows is to calculate the effect of using both operating and financial leverage to magnify the returns for the firm.
	highered.mcgraw-hill.com /sites/0072422645/student_view0/chapter5/e-learning_session.html (688 words)

	CLARCOR's "S.O.L.": Strong Operating Leverage [Fool.com] March 23, 2006
		If you like stories where operating leverage is a central theme, you'll probably like CLARCOR (NYSE: CLC).
		In the company's fiscal first quarter, reported revenue grew in excess of 8%, while organic revenue growth (that is, without the benefit of acquisitions) came in around 7%.
		Operating profits, though, jumped nearly 23%, and the company's operating margin improved by nearly one-and-a-half full percentage points.
	www.fool.com /investing/general/2006/03/23/clarcors-quotsolquot-strong-operating-leverage.aspx (445 words)

	Operating leverage - C1-45 August 2002
		Traditional discussions of leverage focus on financial leverage where equity funds (net worth) are augmented with borrowed funds to increase the size of a business.
		Operating leverage increases the returns to limited equity funds by using them to control assets but not own them.
		If crop prices are low, operating leverage can result in sharply lower net returns due to the higher cost of renting versus owning (debt free) land.
	www.extension.iastate.edu /agdm/wholefarm/html/c1-45.html (686 words)

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