What does the degree of operating leverage represent?

1.  how much the value of capital assets will change in response to a change in sales
2.  how much the operating income of a company will change in response to a change in sales
3.  the valuation of assets to determine how much additional debt the company can borrow
4.  how much the sales of a company will change in response to a change in operating income

Correct Answer:

•  how much the operating income of a company will change in response to a change in sales

[source] ‘High operating leverage means a firm has a relatively fixed, and usually high cost base. So additional sales would incrementally drive more profits because those sales do not need to incur more costs to generate (like a factory, versus factory workers)’