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Sagot :
If sales increase to $110,000, profits would be expected to increase by 45% percent.
Define operating leverage.
The amount that a company's operating income varies in reaction to a change in sales is measured as operating leverage. The DOL ratio helps analysts assess how any change in sales will affect the company's profitability. Even while some businesses have lower sales volumes and lower average profits per sale, they can nonetheless produce enough revenue to pay their fixed expenditures.
For instance, a software company has higher fixed costs for the pay of developers and lower variable expenses for software sales. The company has significant operating leverage as a result. As a result of its high proportion of variable costs, a business with low operating leverage experiences lower profit margins from each sale but does not need to grow its customer base as much to make up for its lower fixed costs.
Given:
(New-old)/old = (110,000-100,000)/100,000 = 10%
10% × 4.5 = 45%
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