The correct answer is: B. Operating Leverage
Operating leverage is a measure of how a company’s operating costs react to changes in sales. A company with high operating leverage has a high proportion of fixed costs, which means that a small change in sales can lead to a large change in operating profit. A company with low operating leverage has a low proportion of fixed costs, which means that a small change in sales can lead to a small change in operating profit.
Financial leverage is a measure of how a company’s financial costs react to changes in sales. A company with high financial leverage has a high proportion of debt, which means that a small change in sales can lead to a large change in net income. A company with low financial leverage has a low proportion of debt, which means that a small change in sales can lead to a small change in net income.
Net profit ratio is a measure of how much profit a company makes after paying taxes. It is calculated by dividing net income by sales.
Gross profit ratio is a measure of how much profit a company makes from its sales before paying taxes and other expenses. It is calculated by dividing gross profit by sales.