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. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

| 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" 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 » Why is the capital adequacy ratio important to shareholders? Understand what the capital adequacy ratio is and why it is a very important metric of financial soundness for evaluating investments in banks. Read More » Calculate the Leverage Ratio Using Tier 1 Capital Knowing about the tier 1 leverage ration, how to calculate it and what it indicates about a bank is important for determining capital adequacy. Read More » Related Definitions Capital Structure Capital structure is how a firm funds its operations and growth, combining 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. Long-term debt for a company would include any financing or leasing obligations that are to come due after a 12-month period. Read More » 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 » 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 » 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