Sir
If a company has a high operational gearing ratio then it means that
a) Company is more risky
b) Profits are more risky
c) Profits are more affected by change in sales and production volume
Are the above 3 points correct?
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High operating gearing ratio
8y ago#1It depends how the ratio is calculated.
If it is calculated as fixed costs / variable costs, then a higher ratio means that profits are more risky because profits are more affected by changes in volume.
If it is calculated as variable costs / fixed costs, then a higher ratio means that profits are less risky because profits are less affected by changes in volume.
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