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L05 Leverage - Leverage Operating and Financial Leverage...

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1 Copyright ©2003 Stephen G. Buell Leverage Operating and Financial Leverage Copyright ©2003 Stephen G. Buell Leverage Operating Leverage L Employment of an asset for which the firm pays a fixed cost Financial Leverage L Employment of funds which the firm pays a fixed return Copyright ©2003 Stephen G. Buell Operating Leverage Firm has fixed operating costs that do not vary with output Rent, capital equipment, salaries A change in output or sales produces a proportionally greater change in operating profits Small Q L bigger Operating Profits
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