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What is Operating Leverage?

Operating leverage is a measure of how critical each sale of a company is to overall cash flow.

If a company has high operating leverage, it means that it relies on fewer sales with very high gross margins, versus a company with low operating leverage that experiences higher levels of sales with lower gross margins. As an example, a convenient store has less operating leverage than a business that sells yachts.

Keywords: leverage, cash flow, corporate finance, yachts, operating leverage,