What is operating leverage a measure of?

Operating leverage is a measure of a company's sensitivity of operating income to changes in sales volume. It indicates how a change in sales will impact operating income due to the presence of fixed and variable costs in the company's cost structure.

When a company has high operating leverage, it means that a small change in sales volume can lead to a significant change in operating income, primarily because a greater proportion of its costs are fixed. This characteristic can amplify profitability during periods of increasing sales, but it can also lead to greater losses when sales decline. Understanding operating leverage is crucial for decision-making and financial planning, as it helps assess the risk and potential reward associated with changes in sales levels.

The other options do not accurately reflect the concept of operating leverage. Total revenue alone does not account for the relationship between costs and sales volume. The statement about fixed costs pertains to one component of operating leverage but does not encompass the overall sensitivity of operating income to changes in sales. Lastly, the efficiency of stock management is unrelated to operating income or how changes in sales volume affect a company's profitability.