A Firm with High Operating Leverage Is Expected To

question 10

Multiple Choice

A firm with high operating leverage is expected to:

• A) have high variable costs.
• B) have low fixed costs.
• C) have a high degree of profitability.
• D)perform better when sales are high.

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Definitions:

Accounts Receivable Period

The average number of days it takes for a company to collect payments from its customers after a sale has been made, a key component in managing cash flow.

Letter of Credit

A financial document issued by a bank guaranteeing a buyer's payment to a seller in a transaction, effective in international trade.

Covenants

A promise by the firm, included in the debt contract, to perform certain acts. A restrictive covenant imposes constraints on the firm to protect the interests of the debtholder.