Operating leverage refers to the degree to which a company's fixed operating costs, such as rent, salaries, depreciation, and utilities, contribute to its overall cost structure and profitability, influencing its financial performance and risk profile. Operating leverage arises when a company has a high proportion of fixed costs relative to variable costs in its operations, causing changes in sales or revenue to have a magnified impact on its operating income or earnings before interest and taxes (EBIT). A company with high operating leverage experiences greater fluctuations in profitability in response to changes in sales volume or revenue, as small changes in sales volume can result in significant changes in operating income due to the fixed nature of its costs.