What defines operating leverage?

Operating leverage is defined as the degree to which a company utilizes fixed costs in its operations relative to its variable costs. This concept is important because it highlights how changes in sales volume will affect the company's operating income. A higher degree of operating leverage signifies that a company has a higher proportion of fixed costs, which can lead to greater fluctuations in profit as sales change.

When sales increase, companies with high operating leverage will see their profits rise sharply since their fixed costs remain constant while variable costs increase at a slower rate. Conversely, if sales decrease, these companies may suffer larger losses due to those same fixed costs. This insight is crucial for understanding a firm's risk profile and potential profitability under varying sales conditions.

The other options relate to different financial concepts. Flexibility in financial planning does not directly relate to how fixed and variable costs interact. Measuring the risk of financial leverage involves understanding debt usage rather than cost structures. Overall profitability refers to profit margins and revenue generation, which, while connected to operating leverage, do not define it. Thus, option C accurately captures the essence of operating leverage by focusing on the balance between fixed and variable costs.