Patricia, Sharice
(2019)
The effect of operating leverage to firms’ profitability and capital structure.
Bachelor thesis, Universitas Pelita Harapan.
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Abstract
Operating activity has become an important process in every business. Continuous operating activity would create fixed operating cost as well. This fixed operating cost is considered as the operating leverage of the company. Company would maintain their operating leverage to achieve optimum cost structure that would increase profitability. However, high operating leverage would also lead to high systematic risk or cost of equity. Therefore, company would maintain both operating leverage and financial leverage to maintain maximum cost of capital. By using sample of 218 of listed company in Indonesia stock exchange, it’s found that operating leverage would have positive effect to profitability when sales in increasing and negative relationship with book leverage and financial leverage. However, operating leverage has no significant effect to market leverage. The research process excludes financial industry and utility industry.
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