Please explain the meaning of highlighted lines:
The way that a business makes sales is also a factor in how much leverage it employs. A firm with few sales and high margins is said to be highly leveraged. On the other hand, a firm with a high volume of sales and lower margins is said to be less leveraged .
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- High Operating Leverage implies that the fixed costs are greater in comparison to the variable costs of the business.
- Low variable costs would be present only if the sale volume is less. As variable costs are directly related to the output.
- Profit is the difference between the Cost of production and the Price, if the variable costs are less then the profit margin would automatically increase.
- Low Operating Leverage implies that the fixed costs are lesser in comparison to the variable costs of the business.
- High variable costs would be present only if the sale volume is high. As variable costs are directly related to the output.
- Profit is the difference between the Cost of production and the Price, if the variable costs are high then the profit margin would automatically decrease.
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