Operating Leverage Refers to

question 39

Multiple Choice

Operating leverage refers to

• A) financing a portion of the firm's assets with securities bearing a fixed rate of return.
• B) the additional chance of insolvency borne by the common shareholder.
• C) the incurrence of fixed operating costs in the firm's income stream.
• D) a high degree of variable costs of production.

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Definitions:

FIFO

First-In, First-Out, an inventory valuation method where goods first bought are the first ones sold.

Input Cost Changes

Refers to variations in the cost of materials or labor that are used in the production of goods or services.

Inventory Turnover

Inventory turnover is a ratio showing how many times a company has sold and replaced its inventory over a specific period. It measures the efficiency of inventory management.

Holding Gains

Profits realized from the increased value of an asset that hasn't been sold, often unrealized and reflected in equity.