Page 350 - FM Integrated WorkBook STUDENT 2018-19
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Chapter 18
Operating gearing
Operating gearing is a measure of the extent to which a firm’s operating
costs are fixed rather than variable as this affects the level of business
risk in the firm.
Operating gearing can be measured as:
Fixed costs Fixed costs % change in EBIT
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Variable costs Total costs % change in revenue
The higher the proportion of fixed costs the higher the operating gearing and the
riskier the EBIT.
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