Fixed cost hai, ya meethi chhuri!? What is operating leverage? What are fixed costs and are they any good? If not why do businesses have any at all? Is a “variable cost only” business model the solution? How does one find the balance? Too many questions? Want some answers? Well then visit the course, and find out!
Introduction to Operating Leverage
Concepts related to Costs, Fixed and Variable
Knowing the Breakeven point of any business
Examples of industries with high and low operating leverage
Case study of Deepak Nitrite
Small changes in individual performances leading to massive results are termed ‘leverage.’ Leverage is an essential component of corporate finance decision-making.
A constant reason for disagreement is finding the “goldilock zone” of leverage. Finding the optimal leverage helps both the business by providing valuable data for internal analysis as well as its stakeholders by providing an insight into the company’s financial health as well as the risks involved with investing in it. Operating leverage is a capable yardstick as it reflects changes to a company’s operating income, good or bad.
“But how does it work?”, you may ask. What operating leverage means is how much of a company’s operating costs consist of fixed costs. Higher operating leverage means a higher portion of fixed costs in the operating costs and vice versa. A high operating leverage also means that the company can increase its revenue by increasing sales upto a limit. While this makes the high operating leverage appear beneficial, this isn’t always the case as it also exposes the company to greater threats to various risks.
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There are no prerequisites for the course. However, it would be helpful if you first watch “Beginners Guide to Stock Market” as it would help you understand the basics.
Quick, quicker, quickest! This course falls under the sprint category and can be completed in 18 min duration.
In this course, we have covered concepts related to Costs, Fixed and Variable, how to understand the break- even point of any business, and how operating leverage could be a helpful criterion in measuring any company’s fiscal health and investment risk.
No, you do not need to install any specific software for this course. However, it is advised for a user to have an active Internet connection and an updated web browser for a seamless learning experience.
Finology provides you with an opportunity to access all its tools and courses by subscribing to Finology One. Hence, you can access this course as long as your subscription of FinologyOne is active.
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