Leverage is an investment strategy of using borrowed money — specifically, the use of various financial instruments or borrowed capital — to increase the potential return of an investment ...
What is financial leverage? Definition of Financial Leverage. Financial leverage which is also known as leverage or trading on equity, refers to the use of debt to acquire additional assets.. The use of financial leverage to control a greater amount of assets (by borrowing money) will cause the returns on the owner's cash investment to be amplified.
Definition of financial leverage: The use of borrowed money to increase production volume, and thus sales and earnings. It is measured as the ratio of total debt to total assets. The greater the amount of debt, the greater the ...
Definition of financial leverage: The degree to which an investor or business is utilizing borrowed money. Companies that are highly leveraged may be at...
Financial Leverage Definition. Financial leverage is the amount of debt that an entity uses to buy more assets.Leverage is employed to avoid using too much equity to fund operations. An excessive amount of financial leverage increases the risk of failure, since it becomes more difficult to repay debt.
Definition: Financial leverage, also called trading on equity, is the financial trade off between the return on the issuance of preferred stock or debt and the cost of maintaining that preferred stock or debt.In other words, can the company earn more from their investment than it costs to maintain the preferred stock or debt? What Does Financial Leverage Mean?
Financial Leverage – Meaning. Financial leverage simply means the presence of debt in the capital structure of a firm. Similarly, in other words, we can also call it the existence of fixed-charge bearing capital which may include preference shares along with debentures, term loans etc.
Financial leverage is usually defined as: = For outsiders, it is hard to calculate operating leverage as fixed and variable costs are usually not disclosed. In an attempt to estimate operating leverage, one can use the percentage change in operating income for a one-percent change in revenue. The product of the ...
Financial leverage Use of debt to increase the expected return on equity. Financial leverage is measured by the ratio of debt to debt plus equity. Financial Leverage 1. To use debt to finance an activity. For example, one usually borrows money in the form of a mortgage to buy a house. One commonly refers to this as leveraging the house. Likewise, one ...
Leverage Ratio In risk analysis, any ratio that measures a company's leverage. One example of a gearing ratio is the long-term debt/capitalization ratio, which is calculated by taking the company's long-term debt and dividing it by its long-term debt added to its preferred and common stock. Another example is a simple debt-to-equity ratio, which is ...