### What Is Operating Leverage?

Operating leverage is a cost-accounting formula that measures the degree to which a firm or project can increase operating income by increasing revenue. A business that generates聽sales with a high gross margin and low variable costs has high operating聽leverage.

The higher the degree of operating leverage, the greater the potential danger from forecasting risk, where a relatively small error in forecasting sales can be magnified into large errors in cash flow projections.

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### The Formula for Operating Leverage Is

This can be restated as:聽