Which metric would a company monitor to evaluate the impact of sales fluctuations on profitability?

The degree of operating leverage is a crucial metric for evaluating how fluctuations in sales volume affect a company's profitability. It measures the sensitivity of a company’s operating income to changes in sales. When a company has a high degree of operating leverage, a small increase in sales can lead to a significantly larger increase in operating profit, and conversely, a small decrease in sales can greatly reduce operating profit.

This metric highlights the relationship between fixed and variable costs in a company’s cost structure. A company with high fixed costs compared to variable costs will have a higher degree of operating leverage, meaning that its profitability is more susceptible to fluctuations in sales. Thus, tracking this degree allows management to better understand and prepare for the potential impacts of changing sales volumes on overall profitability.