What is Financial Leverage?
Financial Leverage A measure of the degree to which a company uses borrowed funds to finance its assets, operations, or investments, amplifying potential returns and risks, often expressed as a ratio of debt to equity or assets.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Financial Leverage” Used in Practice?
High financial leverage increases both the potential return and the risk of insolvency if the company cannot meet its debt obligations.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Financial Leverage?
A measure of the degree to which a company uses borrowed funds to finance its assets, operations, or investments, amplifying potential returns and risks, often expressed as a ratio of debt to equity or assets.
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