Operating and general administrative expenses lagged sales growth, leading to margin expansion and operating income rising 32.3 % (
operational leverage at its best).
Total operational leverage in China is elevated further as factories are built to accommodate a future demand, and since it has been rising in the past automatically projected to climb in the future.
Those who expect gold prices to remain stable or advance modesty from the $ 1700 price per ounce would be best to hold positions in the miners, which have
operational leverage that has not yet played out in securities prices.
Would it be fair to say they are capital intensive businesses in a competitive industry with a lack of pricing power and lots of
operational leverage?
Here, you need to look not only at
operational leverage but at financing structure, partnering assumptions et al..
In the long - term, however,
the operational leverage of the company makes the investment enticing.
This operational leverage exists because when the price of gold increases, the company's manufacturing costs remain fixed.
Operational leverage is the principle that increasing revenues by a small amount can have a disproportionately large impact on net income.
In a business environment, this phenomenon could be easily explained by «
operational leverage».
Operational leverage is the principle that adding incremental revenue will have a greater impact than the revenue already received, because your fixed costs are already «paid for».
As sales are growing, costs are not growing as fast as they are largely fixed (thanks to
operational leverage) leading to operating margins expansion - the beauty of leverage.
Large piles of debt (financial leverage) combined with high fixed costs (
operational leverage) create a very high total operational leverage.