Which of the following statements is not true? select one:

a. operating leverage refers to the extent to which a company's net income reacts to a given change in sales.
b. companies that have higher fixed costs relative to variable costs have higher operating leverage.
c. when a company's sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly.
d. when a company's sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.

D)  When a company's sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.

Explanation:

High operating leverage means that a business will have a higher proportion of fixed costs as compared to variable expenses. And as such, a decrease in sales would mean a more rapid fall in profits as a larger proportion of the costs is made up of fixed costs and hence is unavoidable with a fall in sales. With this information in view high operating leverage and decreased sale will greatly reduce profits.

All the other statements (a,b and c) about operating leverage are true.

Hope that helps.

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