Hello everyone,
Between these two pictures I stumbled across an interesting concept ~ Operating Leverage.
Operating leverage is a simple concept that measures the change in EBIT as a function of change in sales.
In simple terms Operating Leverage is high when with every 1Rs change in sales leads to incremental change in EBIT.
The issue of operating leverage is that it does not receive enough attention and it can provide insight to company’s changing earnings/fundamentals.
As i was searching for the same concept, found an pdf on the same.
Michael Mauboussin has been earlier talked by many seniors in the forum itself. In the Presentation of @desaidhwanil in ‘Investor carnival presentation’ thread has talked about his ‘Luck vs Skill’ and @Donald himself has mentioned him in BQ thread.
Below is the link to his pdf.
I think this is a very important element in business analysis. Requesting everyone, especially seniors to guide us into thinking deeper about operating leverage and its impact.