What is a 'Leverage Ratio'?

A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or that assesses the ability of a company to meet financial obligations.

Sharper Insight. Smarter Investing. Manage Preferences TERM OF THE DAY Leverage Ratio A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt (loans), or assesses the ability of a company to meet its financial obligations. The leverage ratio is important given that companies rely on a mixture of equity and debt to finance their operations, and knowing the amount of debt held by a company is useful in evaluating whether it can pay its debts off as they come due. Breaking it Down: Too much debt can be dangerous for a company and its investors. However, if a company's operations can generate a... Read More Related to "Leverage Ratio" Understanding Leverage Ratios Large amounts of debt can cause businesses to become less competitive and, in some cases, lead to default. Read More What is the difference between the capital adequacy ratio and the leverage ratio? Explore what differentiates the capital adequacy ratio from any one of several leverage ratios used for equity evaluation by investors or analysts. Read More How can I calculate the leverage ratio using tier 1 capital? Learn about the tier 1 leverage ratio, how to calculate the tier 1 capital ratio and what this leverage ratio indicates about a bank. Read More Related Definitions Capital Structure A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. Read More Long-Term Debt Long-term debt consists of loans and financial obligations lasting over one year. Read More Equity Multiplier The ratio of a company's total assets to its stockholder's equity. The equity multiplier is a measurement of a company's financial leverage. Read More Debt/Equity Ratio The Debt/Equity (D/E) ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders' equity. Read More You are currently subscribed as: mondemand.forex@blogger.com Unsubscribe  |  Manage Subscriptions Investopedia, LLC, A Division of IAC. 114 West 41st St, floor 8, New York NY 10036 Copyright © 2018, Investopedia, LLC. All Rights Reserved Follow Us: