What Is a Degree of Operating Leverage?

The degree of operating leverage is also known as the "operating leverage factor." The ratio of the percentage change in operating profit of an enterprise to the percentage change in sales (or sales). A company with a higher degree of operating leverage has a higher operating risk, and its breakeven point requires higher sales (or sales volume); on the other hand, a smaller operating risk requires a lower sales (or sales volume) with its breakeven point . Enterprises can reduce operating leverage by increasing sales (or sales volume), reducing unit variable costs and fixed costs. ^[1]