Research the concepts of operating leverage and business ris

Research the concepts of operating leverage and business risk--they’re related to fixed costs, variable costs, and break-even points. Write a couple of paragraphs explaining these concepts to a layman, using concrete examples.  

Paragraphs can be brief, I just need someone to help me better understand this.

Solution

operating leverage related to fixed cost,variable costs, and break-even points:-

Essentially, operating leverage boils down to an analysis of fixed costs and variable costs. Operating leverage is highest in companies that have a high proportion of fixed operating costs in relation to variable operating costs. This kind of company uses more fixed assets in the operation of the company. Conversely, operating leverage is lowest in companies that have a low proportion of fixed operating costs in relation to variable operating costs.

The best way to explain operating leverage is by way of examples. Take, for example, a software maker such as Microsoft. The bulk of this company\'s cost structure is fixed and limited to upfront development and marketing costs. Whether it sells one copy or 10 million copies of its latest Windows software, Microsoft\'s costs remain basically unchanged. So, once the company has sold enough copies to cover its fixed costs, every additional dollar of sales revenue drops into the bottom line. In other words, Microsoft possesses remarkably high operating leverage.

Business risk:-   

Business risk is the possibility a company will have lower than anticipated profits or experience a loss rather than taking a profit. Business risk is influenced by numerous factors, including sales volume, per-unit price, input costs, competition, the overall economic climate and government regulations. A company with a higher business risk should choose a capital structure that has a lower debt ratio to ensure it can meet its financial obligations at all times.