Here’s the latest question sent in by site visitors who have attended equities interviews at investment banks. This question has allegedly been asked in equity sales interviews at Deutsche. The answer has been suggested by the person who submitted the question (and is not being advocated by us). If you disagree with the answer, or have any superior alternative responses, please express your opinion in the comments box below.

THE QUESTION: What is the degree of a company’s operating leverage when there are no fixed costs?

THE SUGGESTED ANSWER:

This is a little bit of a trick question since OL = Q(P-V)/[Q(P-V) - Fixed Costs], and so if fixed costs are zero, then there is no operating leverage, i.e. the answer = 1.