Positive and Negative Operating Leverage Definition:

Positive Operating Leverage:
When fixed cost has a greater portion in the total cost structure of the firm / company, a small percentage increase in sales increases a greater percentage in net operating income. This concept is known as positive operating leverage.

Negative Operating Leverage:
A negative operating leverage is a situation where fixed cost has a greater portion in the total cost structure of the company and there is a decrease in sales. Such a situation has a negative effect on the revenue of the firm resulting in a greater percentage decrease in net operating income.

Relevant Terms:

• Operating leverage
• Positive financial leverage
• Negative financial leverage