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 .

Dear Student
  • 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.
Hope this information clarifies your doubts. Keep posting :-)
Regards

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