Home Depot’s operating leverage significantly affects the profitability of the company. Since the company lost 21% of earnings in 2007 compared to 2006, it implies that the company’s sales are lower and they cannot pay for all the fixed costs and still earn a profit. Operating leverage changes depending on the economy and how many sales the company is generating. With the decline in the housing market, it directly affected the operating leverage of Home Depot since the store supplies building and renovating supplies. The fixed costs of Home Depot must be paid, but these bills will be difficult to pay in the company keeps losing money. If Home Depot is just making enough to pay the fixed costs, then they are just generating a very small
