The degree to which a business's fixed cost structure causes profits to grow faster than revenue as scale increases.
Deeper Explanation
A business with high fixed costs and low variable costs has high operating leverage: as revenue grows past the break-even point, incremental revenue flows disproportionately to operating profit. Software companies are the classic example — the cost of serving the 10,000th customer is near zero. High operating leverage is transformative during growth phases but dangerous during downturns: fixed costs remain when revenue falls, collapsing margins. The growth investor prizes operating leverage because it means profit growth should outpace revenue growth as the business scales — a feature that drives earnings acceleration and multiple expansion.
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