Same revenue. Same margin.
One number splits them.
Two firms. Both Rs 1000 cr sales, both Rs 200 cr operating profit. The only difference is how much of the cost base is fixed.
| Rs cr |
Firm A |
Firm B |
| Revenue | 1000 | 1000 |
| Fixed cost | 600 | 200 |
| Variable cost | 200 | 600 |
| Operating profit | 200 | 200 |
| Operating leverage | 4.0x | 2.0x |
| Profit if sales -10% | 120 | 160 |
| Profit change | -40% | -20% |
Operating leverage = contribution / operating profit. Firm A keeps 800 of every 1000 after variable cost, so a 10% sales move swings profit 4 times as hard. It cuts both ways. Sales up 10% and Firm A prints +40%.