Meaning and Purpose
Financial Leverage allows businesses to boost returns by using borrowed capital.Definition
Financial Leverage refers to the use of borrowed money (debt) to finance assets and increase potential returns for shareholders.How It Works
Companies utilize debt to fund investments. If the return generated from these investments surpasses the cost of borrowing, equity holders experience magnified profits.Risks and Benefits
Benefits include enhanced shareholder returns. Risks involve amplified losses if investments underperform, potentially leading to financial distress or bankruptcy.Author
