Risk, cost-structure related risk

The effect of sales fluctuations on a company’s profit, taking into account its cost structure. As the proportion of fixed costs increases, the company’s resistance to profit erosion decreases (operating leverage effect). This is because increasing capital intensity, i.e. rising investment in physical capital, is generally associated with higher fixed costs (capacity costs) and relatively lower variable costs. If a market-related drop in demand during the business cycle leads to a reduction in sales, the share of fixed costs has a leverage effect on profits. In other words, the pressure of overhead costs squeezes profits. – See sales risk.

Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent!
University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/