If Company a Has a Higher Degree of Operating Leverage

question 125

Multiple Choice

If company A has a higher degree of operating leverage than company B,then which of the following statements is true?

• A) Company A has higher variable expenses.
• B) Company A's profits are more sensitive to percentage changes in sales.
• C) Company A is more profitable.
• D) Company A is less risky.

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Definitions:

Held-to-Maturity Securities

Held-to-maturity securities are debt securities that an investor intends and is able to hold until their maturity date, recorded at amortized cost.

Unrealized Holding

Gains or losses on investments that have not yet been sold and so are not yet reflected in the income statement.

Debt Securities

Financial instruments representing money borrowed that must be repaid, which include bonds, notes, and bills.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue, a key indicator of financial health.