What is a consequence of a high degree of operating leverage for a company during financial downturns?

A high degree of operating leverage implies that a company has a significant portion of its costs that are fixed rather than variable. This structure affects how the company's profits respond to changes in revenue. During financial downturns, when revenues decline, the high fixed costs can lead to a more pronounced decrease in profits.

As revenues drop, the company still bears the burden of its fixed costs, which means that any reduction in sales has a much larger impact on profitability compared to a company with lower operating leverage. Consequently, the profits can fluctuate dramatically in response to changes in revenue, making the company more sensitive to economic conditions. Hence, higher sensitivity to revenue changes and fluctuating profits is a direct consequence of having a high degree of operating leverage, particularly in challenging financial environments.