Operating Risk
Short definition
Operating risk is the way sales, cost and competition move EBIT even with no debt. Operating leverage amplifies it; demand and input prices are the source.
Detailed explanation
Sources: volume, price-mix, materials/FX, operational disruption, regulation. DOL is the volume-channel multiplier; a commodity shock moves variable cost and sits outside the DOL formula.
Capital-structure practice keeps financial leverage lower when operating risk is high — applied trade-off theory. Cycle, contracted revenue share and inventory policy change the risk.
Why it matters for the CFO
Stacking high debt on high operating risk raises combined leverage and default probability together.
How to read it
EBIT volatility is the output of operating risk; a single-year margin is not the risk. Contracted share and the variable-cost ratio can tell more than DOL.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.