The following is an example OL calculation using the formula from the previous page.
revenue = $1,000,00
variable costs = $186,500
Fixed Costs = $159,500
The operating leverage of 1.24 in the example is a ratio or index that means for every 1 percent change in revenue; there will be a 1.24 change in profit. If the laboratory revenue decreases by 10%, the profit decreases by 1.24 X 10% or 12.4%. Operating leverages near one are considered safe, while OL near or greater than 2 represents a considerable risk.
