Operating Leverage (2)
Posted on May 18, 2009 - Filed Under Finance
The movement from 75,000 to 82,500 visits resulted in a (82,500 ? 75,000) / 75,000 = 7,500 / 75,000 = 0.10 = 10% increase in volume and thus total revenues. While the top line of the P&L statement—
total revenues—increased by 10 percent, the bottom line of the statement— profit—increased by 128.5 percent ($538,650 / $419,038 = 1.285 = 128.5%.) This incredible increase in profit occurs because the clinic is reaping the benefit of its cost structure, which includes fixed costs that do not increase with volume.
If a high proportion of a business’s total costs are fixed, the business is said to have high operating leverage. In physics, leverage implies the use of a lever to raise a heavy object with a small amount of force. In politics, individuals who have leverage can accomplish much with the smallest word or
action. In finance, high operating leverage means that a relatively small change in volume results in a large change in profit.
Taken From : HEALTHCARE FINANCE
Comments
4 Responses to “Operating Leverage (2)”
Leave a Reply
[…] outside the limits your ability to accounting. It is recommended that you still get enough work experience, acquire knowledge in various aspects of education, and improve your character step forward to be […]
[…] method, people who are interested in your product or service will see your article, view you as an expert in the subject, and will visit your […]
[…] Archiving Allow your customers to return to archive e-zine issue on their website. They may need content for their web sites. If people visit their web sites and as the e-zine, they subscribe […]
[…] Remember that first impressions, last. So make good. If you have a successful start to build good relationships with the prospects, possibilities, you will generate sales and get all-important referrals to other […]