Abstract
We review degree of operating leverage (DOL) discussions from nine current elementary finance textbooks and note incomplete treatments. We argue that textual discussions on DOL could aid the beginning student’s understanding by noting, in addition to fixed costs, the impact of other variables (unit variable costs, unit price, short-run output level). We further suggest that complete treatments should reference how the DOL measure fits into the larger business risk context, point to management’s role in influencing selected DOL variables as business risk parameters, and mention the measurement discontinuities of DOL at breakeven and profit maximizing output levels.
Recommended Citation
Kiymaz, Halil and Hodgin, Robert
(2003)
"Enhancing Clarity and Completeness of Basic Financial Text Treatments on Operating Leverage,"
Journal of Economics and Finance Education: Vol. 2:
Iss.
1, Article 5.
Available at:
https://scholarship.rollins.edu/jefe/vol2/iss1/5
