Operating Leverage

To know how sensitive Net Operating income is to a given percentage of change in dollar sales. The Net Operating income serves as an Multiplier. If the operating leverage is high, a small percentage increase in sales can produce a much larger percentage increase in net operating income. To determined what your Degree of operating leverage is use this formula: Degree of operating leverage = CM divided by Net Operating income. If your degree of operating leverage is a 4 then that would mean that your net operating income grows four times as fast as its sales.