Degree of operational leverage

Explore operational leverage, a critical concept used by credit analysts to evaluate a company's risk profile and profitability potential.

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.