A high Operating Leverage indicates:
ALow fixed costs
BLow EPS
CNo tax
DHigh fixed costs and high business risk
Answer & Solution
Correct answer: D. High fixed costs and high business risk
1. DOL is high when fixed operating costs are high.
2. Small change in sales causes large change in EBIT.
3. Indicates high business risk.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §3_
Related questions
A 10% increase in sales increases EBIT by 25% in a company. DOL is:A negative operating leverage at a particular sales level implies:Operating Leverage will be high in industries with:A firm has DOL = 3 and a 5% increase in sales. What is the % change in EBIT?Operating Leverage at the Break-Even Point is:Sales ₹10,00,000; Variable Cost ₹6,00,000; Fixed Cost ₹2,00,000. Operating Leverage is:Operating Leverage measures the relationship between: