Student’s Name Professor’s Name Subject Date Operating leverage Explain why a company with high operating leverage faces greater risk in a declining sales period compared to a company with low operating leverage. Operating leverage is a type of leverage in a company that is focused on the outcomes of multiple combinations of fixed costs and variable costs (Pandey 2015.p. 23). More so income (Merritt 2018.p. (n.d)). Moreover if a company with high operating leverage is determined to get sufficient contribution margin it should ensure that thy are more cautious not to set their prices lower. Works Cited Merritt Cam. “What Is Meant by a Product's Contribution Margin?” Chron SOLTUBE 2018. http://smallbusiness.chron.com/meant-products-contribution-margin-56895.html Pandey I M. Financial Management. New Delhi: Vikas Publishing House PVT LTD 2015.Print. https://www.abebooks.com/Financial-Management-Tenth-Edition-I.M-Pandey/17351830639/bd [...]
Please answer the following questions in detail. 350 words in APA format with in-text citations. Use credible online sources from Accounting Firms and universities in the U.S. Also Forbes.com and Businessweekly.com are considered credible. Please include the url (link) to the website for each reference. The questions to be answered are as follows: With regards to Operating Leverage, please explain why a company with HIGH Operating Leverage faces greater financial risk in a declining sales period compared to a company with LOW Operating Leverage. (HINT: The key here is the relation between fixed costs and variable costs.) What does a business's Contribution Margin represent? What does the Contribution Margin have to do with Operating Leverage?