Degree of Operational Leverage

In this video, we explore Operational Leverage, a critical concept used by credit analysts to evaluate a company's risk profile and profitability potential.

What You'll Learn:
-Definition of Operational Leverage
-How to calculate the Degree of Operational Leverage (DOL)
-The significance of high versus low operational leverage
-Why this metric is essential for assessing a company's fixed-cost structure and profit sensitivity
-Insights into industry-specific considerations and best practices

High operational leverage implies that a company must maintain a certain volume of sales to cover its fixed costs, making it riskier, particularly in volatile markets or during economic downturns. Conversely, lower operational leverage suggests a company has more flexibility in adjusting costs in response to sales changes, potentially posing a lower credit risk.

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Видео Degree of Operational Leverage канала Global Institute of Credit Professionals