The Degree of Operating Leverage

question 109

Multiple Choice

The degree of operating leverage

• A) does not provide a reliable measure of a company's earnings volatility.
• B) cannot be used to compare companies.
• C) is computed by dividing total contribution margin by net income.
• D) measures how much of each sales dollar is available to cover fixed expenses.

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Definitions:

Price-Earnings Ratio

A valuation metric for stocks, calculating the ratio of a company's current share price to its per-share earnings.

Market Price

The current value at which a good, service, or asset is traded on the market, determined by supply and demand dynamics.

Earnings Per Share

An economic indicator that measures how much of a firm's earnings are distributed across all shares of common stock, demonstrating the firm's financial success.

Statement Of Cash Flows

A financial document that provides a detailed analysis of what happened to a company's cash during a given period, by categorizing cash flows into operations, investing, and financing activities.