Group 4S3

Seminar in strategic Management.

Sunday 6-10 pm (Online)
Prof. Dr. Refah Hassan

Prepared By: Shimaa Abdel Azeem

ID:20122212
Table of Contents

Company Overview.
Strategy.
Mission.
Vision.
Values.
Competitors.

SWOT Analysis.
- Strengths
- Weaknesses
- Opportunities
- Threats

Business Model

PESTEL Analysis
- Political
- Economical
- Social
- Technological
- Environment
- Legal

Porter Five forces

- Threats of New Entrants
- Bargaining power of suppliers
- Bargaining power of Buyers.
- Threats of Substitute Products or Services
- Rivalry among the Existing Competitors

Financial Ratios
Overview

Visa’s journey begins in 1958, the year that Bank of America launched the method of cash less
payments, the first consumer credit card program for middle-class consumers and small to
medium-sized merchants in the U.S.
It did not take long for the company to grow.

The company expanded internationally 1976 as Bank of America became VISA a name that
sounds the same in all languages.
In 2007, regional businesses around the world were merged to form Visa Inc and, in 2008, the
company went public in one of the largest IPOs in history.

In 2016, Visa completed the acquisition of Visa Europe. Today, Visa operates in more than 200
countries and territories with products and services available on any device – cards, laptops,
tablets, and mobile devices.
Operated within open loop network has a transaction centric business model, as it doesn’t
make money from the merchant discount fees or the card holder membership, revenue
generated from:

- Service Revenue from Banks when they participate in visa card programs.
- Data Processing Revenue for authorization, clearing settlement and transaction
processing
- International transactions where the cardholder if from diff country that the merchant.
- Other Revenues generated through license fees for usage of visa brand
Being a user, nothing seems big different to let me choose between them, as banks are the
ones that set interest rates, fees, perks and rewards. However occasionally you may find perks
that if offered by the card like 5% discount on Old navy.

VISA Strategy

- Visa’s strategy is to accelerate our revenue growth in consumer payments, new flows
and value-added services, and fortify the key foundations of our business model.

- Differentiation strategy focuses on developing brand loyalty by offering premium

products. Achieving differentiation leadership, by focusing on the reliability, durability,
benefits and distinctive features of products, by developing strong brand recognition
and by increasing expenditure on marketing efforts like celebrity endorsements and
sponsorships
Visa's main competitive advantage its dominant position in the payment market.
It is in a duopoly, with Mastercard (MA) being its main competitor. Since both brands are
highly recognized and trusted, it makes it more difficult for competitors to disrupt their
dominance.

The company has the advantage of being the most valuable brands in the world. During the year
2016 American Express is considered the 59 th highest rank brand in the world. American Express
has about 60,000 employees who bring our innovative methods of payment.
Mission

“To remove barriers and connect more people to the global economy. Because we believe that
economies that include everyone, everywhere uplift everyone, everywhere.”
Visa’s Mission is also “To connect the world through the most innovative, reliable and secure
payment network – enabling individuals, businesses and economies to thrive.
The key points of the mission statement from Visa are:
1. Facilitating digital payments: Visa’s main goal is to process digital payments throughout the
world, be it between America and Australia or Brazil and India.
2. Quick transactions: Visa has always maintained its integrity to ensure that digital
transactions can be processed in the fastest possible manner. No one will have to wait much
longer.
3. Helping both individual and organization customers: Visa offers its services to everyone,
making sure to cater to the needs of individuals, banks, organizations, and businesses.
4. Cardless payments: Besides, Visa is also looking to establish a finance world where cardless
payments can be made throughout, regardless of the transaction volumes and transfer amount

Vision
“To be the best way to pay and be paid, for everyone, everywhere – guides our purpose.” Even
though the vision statement is simple and to the point, it’s proven that Visa is trying to ensure
that everyone, individuals and organizations alike, makes the fastest transactions and receives
payments with no delay.
The key points of Visa’s mission statement are:
1. Social engagement: Visa wishes to increase social engagement between the payers and
payees by cardless transactions worldwide.
2. Quickest transactions: All the transactions are done in the fastest possible manner.
Therefore, if someone needs to be paid or needs to pay, the operations can be done quickly.
3. Secure payments: The company has taken proper steps to ensure that all the payments are
secured and safe from digital threats.
4. 24X7 operations: Visa wants to ensure that the payments do not face any kind of time
constraint. That’s why it operates 24X7 unless and until any dire situation is faced.
Values
Visa’s core values make them so responsible and guide all the employees working tirelessly to
reach their goals.
1. Operating responsibility: Visa is looking forward to providing top-notch services with no
security threats or delays in the payments.
2. Social impact: Its main aim is to create a positive social impact by enabling everyone to
connect socially without being concerned about financial hassles.
3. Inclusion and diversity: The company has implemented the principle of inclusion and
diversity to make sure no one faces biased decisions and actions concerning financial payments.
It focuses on including people from diverse walks of life to create a positive work environment.

Competitors:
 Mastercard: A top Visa competitor, Mastercard is a popular finance industry that was
formed during the year 1966 and is headquartered in New York, US. The main business
is to process payments between the card issuing bank, cardholder, and the banks of
merchants.
 American Express popularly known as Amex is a popular banking and financial service
industry that was formed during the year 1850 and is headquartered in New York, United
States. The company is common for issuing its credit card, charge card, and traveler’s
cheque.
What’s the difference – what do Visa and Mastercard do?
These two companies appear on the lion’s share of credit cards in Australia – about 83% of all
payments made in June 2019 were for cards stamped with one of their logos, according to
Statista.com. However, these companies have only a small amount of influence over the actual
credit card products and benefits that a user may end up signing up for. This is because:
 They are just digital payment platforms – they only provide the system that allows a
payment transaction to take place, rather than distributing cards themselves.
 They do not issue credit cards, and so do not determine, for example, how much
interest you could be charged on outstanding balances, nor what types of points you
will earn if your card is attached to a rewards program. The issuing banks decide these
things.
 Credit cards from both platforms are accepted just about equally almost anywhere in
the world.
There are some minor differences between the two payment platforms, however.
These include:
 Some banks and outlets have “exclusive” arrangements with one payment platform
over the other. For example, in 2015 National Australia Bank signed a 10-year
agreement with Visa which means until 2025, the bank’s customers will only be offered
Visa credit cards.
 “Benefit” programs – perks built into the cards by Visa or Mastercard before the issuing
bank applies its conditions – differ slightly. See below section “What are premium credit
cards” for more information. Mastercard has a “Standard Mastercard” offering, along
with higher levels of benefits – Platinum, World and World Elite – while Visa also has a
standard offering, with extra benefits available with the Gold, Platinum, Signature and
Infinite packages. However, banks may change these conditions and/or offer their own
benefit programs, so it could be a good idea to check out the benefit package
conditions on each individual credit card a bank is offering before making a decision.
As far as most consumers are concerned, there is no real difference between Mastercard and
Visa. The two are both widely accepted in over 200 countries, and it is very rare to find a
location that will accept one but not the other. However, neither Visa nor Mastercard actually
issue any credit cards themselves, so the main differences between credit cards are created by
the banks that issue them.
SWOT Analysis

Strengths of Visa

 Largest Market Share:

- Strong distribution network – Over the years Visa Inc. has built a reliable
distribution network that can reach majority of its potential market.
- It is also a leading operator of digital transactions and a segment leader in the
market.
 Innovative Products: It has a successful track record of developing new innovative
products according to the needs and changing customer behaviors and requirements to
attract their customer base and to be able to satisfy their customer needs.
 Secured Dossier Centers: Visa’s dossier centers are secured heavily against crime, It can
handle about 30,000 concurrent transactions and about 100 billion computations per
second. Every transaction is checked against 500 variables, including about 100 fraud
detection parameters like the location, merchant’s location, and customer spending
behavior.
 Endorsements: Visa has many sponsored events such as Visa Newsroom, Olympics, the
Paralympics, FIFA world cup and events happening on a global level.
 Strong Brand Portfolio - Strong Free Cash Flow.
 High level of customer satisfaction
dedicated customer relationship management department has able to achieve a
high level of customer satisfaction among present customers and good brand equity
among the potential customers.

Weaknesses of Visa

 Investment in Research and Development is below the fastest growing players in the
industry. Even though Visa Inc. is spending above the industry average on Research and
Development, it has not been able to compete with the leading players in the industry in
terms of innovation.
 There are gaps in the product range sold by the company. This lack of choice can give a
new competitor a foothold in the market.
 High attrition rate in work force – compared to other organizations in the industry Visa
Inc. has a higher attrition rate
 The company has not been able to tackle the challenges present by the new entrants in
the segment and has lost small market share in the niche categories. Visa Inc. has to
build internal feedback mechanism directly from sales team on ground to counter these
challenges.
Opportunities for Visa

 Opening new Markets.

 The new technology provides an opportunity to Visa Inc. to practices differentiated
pricing strategy in the new market.
 government agreement – the adoption of new technology standard and government
free trade agreement has provided Visa Inc. an opportunity to enter a new emerging
market.

 New customers from online channel – Over the past few years the company has
invested vast sum of money into the online platform. This investment has opened new
sales channel for Visa Inc. In the next few years, the company can leverage this
opportunity by knowing its customer better and serving their needs using big data
analytics.

 New environmental policies – The new opportunities will create a level playing field for
all the players in the industry. It represents a great opportunity for Visa Inc. to drive
home its advantage in new technology and gain market share in the new product
category.
 The new taxation policy can significantly impact the way of doing business and can open
new opportunity for established players such as Visa Inc. to increase its profitability.
 E-currency: The across world use of digital currency at the international level has seen a
big indication for Visa. By this, customers can easily do transactions with money by
sending money to their relatives living abroad from any part of the world.

Threats to Visa
 Global Transactions: As Visa is being operated across the globe, it is exposed to currency
fluctuations as different countries have different currencies so these fluctuations happen
because the price differs from country to country. It happens in a volatile political climate in
many markets all over the world.
 Less Experienced Workforce: Visa faces a shortage of experienced workforce in many global
level markets that are a threat to the current product and not having enough workforce
comes as a threat to the company in the future.
 Competing Environment: The highly competitive environment in the financial market is very
much dangerous for Visa. It has big rivals, including Mastercard as well as digital
payments companies such as PayPal and they are also the most established companies in
the prevailing market. Thus Visa has to make its USP if they want to survive in the market.

 Increasing trend toward isolationism in the American economy can lead to similar reaction
from other government thus negatively impacting the international sales.
Business Model
PESTEL Analysis

 Visa Inc. PESTEL analysis is a strategic tool to analyze the macro environment of the
organization. PESTEL stands for - Political, Economic, Social, Technological, Environmental &
Legal factors that impact the macro environment of Visa Inc..

Changes in the macro-environment factors can have a direct impact on not only the Visa
Inc. but also can impact other players in the Credit Services. The macro-environment factors
can impact the Porter Five Forces that shape strategy and competitive landscape. They can
impact individual firm’s competitive advantage or overall profitability levels of the Financial
industry.
 Political Factors that Impact Visa Inc.
 Political factors play a significant role in determining the factors that can impact Visa Inc.'s
long term profitability in a certain country or market. Visa Inc. is operating in Credit Services
in more than dozen countries and expose itself to different types of political environment
and political system risks. The achieve success in such a dynamic Credit Services industry
across various countries is to diversify the systematic risks of political environment. Visa Inc.
can closely analyze the following factors before entering or investing in a certain market-
 Political stability and importance of Credit Services sector in the country's economy.
 Risk of military invasion.
 Level of corruption - especially levels of regulation in financial sector.
 Bureaucracy and interference in Credit Services industry by government.
 Legal framework for contract enforcement.
 Intellectual property protection.
 Trade regulations & tariffs related to Financial.
 Favored trading partners.
 Anti-trust laws related to Credit Services.
 Pricing regulations – Are there any pricing regulatory mechanism for Financial.
 Taxation - tax rates and incentives.
 Wage legislation - minimum wage and overtime.
 Work week regulations in Credit Services.
 Mandatory employee benefits.
 Industrial safety regulations in the financial sector.
 Product labeling and other requirements in Credit Services.

Economic Factors that Impact Visa Inc.

 The Macro environment factors such as – inflation rate, savings rate, interest rate, foreign
exchange rate and economic cycle determine the aggregate demand and aggregate
investment in an economy. While microenvironment factors such as competition norms
impact the competitive advantage of the firm. Visa Inc. can use country’s economic factor
such as growth rate, inflation & industry’s economic indicators such as Credit Services
industry growth rate, consumer spending etc to forecast the growth trajectory of not only --
sector name-- sector but also that of the organization. Economic factors that Visa Inc.
should consider while conducting PESTEL analysis are -
 Type of economic system in countries of operation – what type of economic system there is
and how stable it is.
 Government intervention in the free market and related Financial
 Exchange rates & stability of host country currency.
 Efficiency of financial markets – Does Visa Inc. needs to raise capital in local market?
 Infrastructure quality in Credit Services industry
 Comparative advantages of host country and Financial sector in the particular country.
 Skill level of workforce in Credit Services industry.
 Education level in the economy
 Labor costs and productivity in the economy
 Business cycle stage (e.g. prosperity, recession, recovery)
 Economic growth rate
 Discretionary income
 Unemployment rate
 Inflation rate
 Interest rates

Social Factors that Impact Visa Inc.

 Society’s culture and way of doing things impact the culture of an organization in an
environment. Shared beliefs and attitudes of the population play a great role in how
marketers at Visa Inc. will understand the customers of a given market and how they design
the marketing message for Credit Services industry consumers. Social factors that
leadership of Visa Inc. should analyze for PESTEL analysis are -
 Demographics and skill level of the population
 Class structure, hierarchy and power structure in the society.
 Education level as well as education standard in the Visa Inc. ’s industry
 Culture (gender roles, social conventions etc.)
 Entrepreneurial spirit and broader nature of the society. Some societies encourage
entrepreneurship while some don’t.
 Attitudes (health, environmental consciousness, etc.)
 Leisure interests

Technological Factors that Impact Visa Inc.

 Technology is fast disrupting various industries across the board. Transportation industry is
a good case to illustrate this point. Over the last 5 years the industry has been transforming
really fast, not even giving chance to the established players to cope with the changes. Taxi
industry is now dominated by players like Uber and Lyft. Car industry is fast moving toward
automation led by technology firm such as Google & manufacturing is disrupted by Tesla,
which has stated an electronic car revolution.

A firm should not only do technological analysis of the industry but also the speed at which
technology disrupts that industry. Slow speed will give more time while fast speed of
technological disruption may give a firm little time to cope and be profitable. Technology
analysis involves understanding the following impacts -
 Recent technological developments by Visa Inc. competitors
 Technology's impact on product offering
 Impact on cost structure in Credit Services industry
 Impact on value chain structure in Financial sector
 Rate of technological diffusion
 Environmental Factors that Impact Visa Inc.
 Different markets have different norms or environmental standards which can impact the
profitability of an organization in those markets. Even within a country often states can
have different environmental laws and liability laws. For example in United States – Texas
and Florida have different liability clauses in case of mishaps or environmental disaster.
Similarly a lot of European countries give healthy tax breaks to companies that operate in
the renewable sector.

Before entering new markets or starting a new business in existing market the firm should
carefully evaluate the environmental standards that are required to operate in those
markets. Some of the environmental factors that a firm should consider beforehand are -
 Weather
 Climate change
 Laws regulating environment pollution
 Air and water pollution regulations in Credit Services industry
 Recycling
 Waste management in Financial sector
 Attitudes toward “green” or ecological products
 Endangered species
 Attitudes toward and support for renewable energy

Legal Factors that Impact Visa Inc.

 In number of countries, the legal framework and institutions are not robust enough to
protect the intellectual property rights of an organization. A firm should carefully evaluate
before entering such markets as it can lead to theft of organization’s secret sauce thus the
overall competitive edge. Some of the legal factors that Visa Inc. leadership should consider
while entering a new market are -
 Anti-trust law in Credit Services industry and overall in the country.
 Discrimination law
 Copyright, patents / Intellectual property law
 Consumer protection and e-commerce
 Employment law
 Health and safety law
 Data Protection
VISA Porter Five (5) Forces

Michael Porter observed five forces that have significant impact on a firm's profitability in its
industry. These five forces analysis today in business world is also known as -Porter Five Forces
Analysis. The Porter Five (5) Forces are –

 Threat of New Entrants

 Bargaining Power of Suppliers
 Bargaining Power of Buyers
 Threat from Substitute Products
 Rivalry among the existing players.

Porter Five Forces is a holistic strategy framework that took strategic decision away from just
analyzing the present competition. Porter Five Forces focuses on - how Visa Inc. can build a
sustainable competitive advantage in Credit Services industry. Managers at Visa Inc. can not
only use Porter Five Forces to develop a strategic position within Credit Services industry but
also can explore profitable opportunities in whole Financial sector.
Threats of New Entrants
New entrants in Credit Services brings innovation, new ways of doing things and put pressure
on Visa Inc. through lower pricing strategy, reducing costs, and providing new value
propositions to the customers. Visa Inc. has to manage all these challenges and build effective
barriers to safeguard its competitive edge.
How Visa Inc. can tackle the Threats of New Entrants
By innovating new products and services. New products not only brings new customers to the
fold but also give old customer a reason to buy Visa Inc. ‘s products.
By building economies of scale so that it can lower the fixed cost per unit.
Building capacities and spending money on research and development. New entrants are less
likely to enter a dynamic industry where the established players such as Visa Inc. keep defining
the standards regularly. It significantly reduces the window of extraordinary profits for the new
firms thus discourage new players in the industry.

Bargaining Power of Suppliers

All most all the companies in the Credit Services industry buy their raw material from numerous
suppliers. Suppliers in dominant position can decrease the margins Visa Inc. can earn in the
market. Powerful suppliers in financial sector use their negotiating power to extract higher
prices from the firms in Credit Services field. The overall impact of higher supplier bargaining
power is that it lowers the overall profitability of Credit Services.
How Visa Inc. can tackle Bargaining Power of the Suppliers
By building efficient supply chain with multiple suppliers.
By experimenting with product designs using different materials so that if the prices go up of
one raw material, then company can shift to another.
Developing dedicated suppliers whose business depends upon the firm. One of the lessons Visa
Inc. can learn from Wal-Mart and Nike is how these companies developed third party
manufacturers whose business solely depends on them thus creating a scenario where these
third-party manufacturers have significantly less bargaining power compare to Wal-Mart and
Nike.

Bargaining Power of Buyers

Buyers are often a demanding lot. They want to buy the best offerings available by paying the
minimum price as possible. This put pressure on Visa Inc. profitability in the long run. The
smaller and more powerful the customer base is of Visa Inc. the higher the bargaining power of
the customers and higher their ability to seek increasing discounts and offers.
How Visa Inc. can tackle the Bargaining Power of Buyers
By building a large base of customers. This will be helpful in two ways. It will reduce the
bargaining power of the buyers plus it will provide an opportunity to the firm to streamline its
sales and production process.
By rapidly innovating new products. Customers often seek discounts and offerings on
established products so if Visa Inc. keep on coming up with new products then it can limit the
bargaining power of buyers.
New products will also reduce the defection of existing customers of Visa Inc. to its
competitors.

Threats of Substitute Products or Services

When a new product or service meets a similar customer need in different ways, industry
profitability suffers. For example, services like Dropbox and Google Drive are substitute to
storage hardware drives. The threat of a substitute product or service is high if it offers a value
proposition that is uniquely different from present offerings of the industry.
How Visa Inc. can tackle the Treat of Substitute Products / Services
By being service oriented rather than just product oriented.
By understanding the core need of the customer rather than what the customer is buying.
By increasing the switching cost for the customers.

Rivalry among the Existing Competitors

If the rivalry among the existing players in an industry is intense then it will drive down prices
and decrease the overall profitability of the industry. Visa Inc. operates in a very competitive
Credit Services industry. This competition does take toll on the overall long term profitability of
the organization.

Net revenues consist of service revenues, data processing revenues, international transaction
revenues and other revenues, minus client incentive arrangements we have with our clients.
We have one reportable segment, which is Payment Services
-
 Financial Ratios

Visa Inc.
Common-Size Consolidated Income Statement
12 months ended: Sep 30, 2021 Sep 30, 2020 Sep 30, 2019
Net revenues 100.00% 100.00% 100.00%
Personnel -17.59% -17.33% -14.99%
Marketing -4.71% -4.44% -4.81%
Network and processing -3.03% -3.33% -3.14%
Professional fees -1.67% -1.87% -1.98%
Depreciation and amortization -3.34% -3.51% -2.86%
General and administrative -4.09% -5.02% -5.21%
Litigation provision -0.01% -0.05% -1.74%
Visa Europe Framework Agreement loss — — —
Operating expenses -34.44% -35.54% -34.71%
Operating income 65.56% 64.46% 65.29%
Interest expense, net -2.13% -2.36% -2.32%
Investment income 3.03% 0.92% 1.67%
Other 0.17% 0.11% 0.14%
Investment income and other 3.20% 1.03% 1.81%
Non-operating income (expense) 1.07% -1.33% -0.51%
Income before income taxes 66.64% 63.12% 64.78%
Income tax provision -15.57% -13.38% -12.20%
Net income 51.07% 49.74% 52.57%
Visa Inc.
Common-Size Consolidated Balance Sheet: Assets
Sep 30, 2021 Sep 30, 2020 Sep 30, 2019
Cash and cash equivalents 19.89% 20.13% 10.80%
Restricted cash equivalents, U.S. litigation escrow 1.08% 1.11% 1.66%
Investment securities 2.44% 4.64% 5.84%
Settlement receivable 2.12% 1.56% 4.20%
Accounts receivable 2.37% 2.00% 2.12%
Customer collateral 2.73% 2.29% 2.27%
Current portion of client incentives 1.64% 1.50% 1.02%
Prepaid expenses and other current assets 1.03% 0.94% 0.98%
Current assets 33.30% 34.16% 28.89%
Investment securities 2.06% 0.29% 2.97%
Client incentives 3.91% 3.92% 2.87%
Property, equipment and technology, net 3.28% 3.38% 3.71%
Goodwill 19.25% 19.66% 21.57%
Intangible assets, net 33.37% 34.37% 36.90%
Other assets 4.83% 4.22% 3.08%
Non-current asset 66.70% 65.84% 71.11%
Total assets 100.00% 100.00% 100.00%
Visa Inc.
Return on Equity (ROE)
Sep 30, 2021 Sep 30, 2020 Sep 30, 2019

Selected Financial Data (US$ in millions)

Net income 12,311 10,866 12,080
Equity 37,589 36,210 34,684

Profitability Ratio
ROE 32.75% 30.01% 34.83%

Benchmarks

ROE, Competitors

Accenture PLC 30.25% 30.05% 33.17%

Adobe Inc. 32.59% 39.66% 28.03%
International Business Machines Corp. 30.38% 27.14% 45.25%
Intuit Inc. 20.89% 35.76% 41.53%
Mastercard Inc. 118.80% 100.31% 137.76%
Microsoft Corp. 43.15% 37.43% 38.35%
Oracle Corp. 262.43% 83.94% 50.87%
PayPal Holdings Inc. 19.19% 20.99% 14.56%
Salesforce Inc. 9.81% 0.37% 7.11%
ServiceNow Inc. 6.22% 4.18% 29.45%
ROE, Sector

Software & Services 38.19% 32.88% 37.55%

ROE, Industry

Information Technology 42.38% 35.05% 36.72%

Visa Inc.
Three-component disaggregation of ROE
ROE = Net Profit × Asset Turnover × Financial
Margin Leverage
Sep 30, 2021 32.75% 51.07% 0.29 2.21
Sep 30, 2020 30.01% 49.74% 0.27 2.23
Sep 30, 2019 34.83% 52.57% 0.32 2.09
Sep 30, 2018 30.29% 49.98% 0.30 2.04
Sep 30, 2017 20.45% 36.49% 0.27 2.08
Sep 30, 2016 18.20% 39.72% 0.24 1.95

Visa Inc.
Two-component disaggregation of ROE
ROE = ROA × Financial Leverage

Sep 30, 2021 32.75% 14.85% 2.21

Sep 30, 2020 30.01% 13.43% 2.23
Sep 30, 2019 34.83% 16.65% 2.09
Sep 30, 2018 30.29% 14.88% 2.04
Sep 30, 2017 20.45% 9.85% 2.08
Sep 30, 2016 18.20% 9.36% 1.95
Source: https://www.stock-analysis-on.net/NYSE/Company/Visa-Inc/Ratios/DuPont
Visa PE Ratio

Current and historical p/e ratio for Visa (V) from 2010 to 2022. The price to earnings ratio is
calculated by taking the latest closing price and dividing it by the most recent earnings per share
(EPS) number. The PE ratio is a simple way to assess whether a stock is over or under valued and is
the most widely used valuation measure. Visa PE ratio as of July 22, 2022 is 32.22.
VISA Degree of Operating Leverage (DOL)

What Is the Degree of Operating Leverage (DOL)?

The degree of operating leverage (DOL) is a multiple that measures how much the operating
income of a company will change in response to a change in sales. Companies with a large
proportion of fixed costs (or costs that don't change with production) to variable costs (costs that
change with production volume) have higher levels of operating leverage.1

The DOL ratio assists analysts in determining the impact of any change in sales on
company earnings or profit.