- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 5. Company Analysis: Past and Present
- Subject 4. Operating Profitability and Working Capital Analysis
CFA Practice Question
Operating leverage ______
B. increases operating income variability relative to sales variability.
C. increases net income variability relative to operating income variability.
A. decreases operating income variability relative to sales variability.
B. increases operating income variability relative to sales variability.
C. increases net income variability relative to operating income variability.
Correct Answer: B
Operating leverage, which results from the use of fixed factors of production, increases the variability of operating income relative to sales variability.
User Contributed Comments 5
| User | Comment |
|---|---|
| in4maha | I dont get this question can any one explain it plz |
| hoyleng | in4maha : it asks about the formula for DOL |
| johntan1979 | DOL = % change in EBIT / % change in sales |
| stanevd | a is also possible |
| Inaganti6 | A is not possible I think the relation between EBIT and SALES gets very linear or there is a straight forward ratio/multiple type effect if there isn't any operating leverage |