What is 'Leverage'?

Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate returns on risk capital ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

| Term of the Day Leverage Leverage results from using borrowed capital as a funding source when investing to expand the firm's asset base and generate returns on risk capital. 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. Leverage can also refer to the amount of debt a firm uses to finance assets. When one refers to a company, property or investment as "highly leveraged," it means that item has more debt than equity. Breaking it Down: Investors who are not comfortable using leverage directly have a variety of ways to access... Read More » Related to "Leverage" The Optimal Use of Financial Leverage in a Corporate Capital Structure The amount of debt and equity that makes up a company's capital structure has many risk and return implications. Learn about them. Read More » Leverage: Increasing your real estate net worth Using leverage in housing purchase can significantly increase your real estate net worth if you use it carefully. Learn more on how increasing leverage can benefit your net worth. Read More » How Investors Use Leverage Ratios to Gauge Financial Health Investors use a variety of leverage ratios — including the debt, debt-to-equity and interest coverage ratios — to identify firms with unhealthy debt levels. Read More » Related Definitions Equity Multiplier The ratio of a company's total assets to its stockholders' equity. The equity multiplier is a measurement of a company's financial leverage. Read More » Trading Margin Excess The funds that remain in a margin trading account that are available to use towards the purchase of a new position or the increase of an existing position. Traders and investors often take advantage of margin accounts that provide a leveraged amount of funds with which to trade or invest. Read More » Long-Term Debt To Capitalization Ratio The long-term debt to capitalization ratio, calculated by dividing long-term debt by available capital, shows the financial leverage of a firm. Read More » Deleverage Deleveraging is when a company or individual attempts to decrease its total financial leverage. Read More » CONNECT WITH INVESTOPEDIA Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2019, Investopedia, LLC, All Rights Reserved | Privacy Policy