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Financial Leverage |
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Financial leverage Use of debt to increase the expected return on equity. Financial leverage is measured by the ratio of debt to debt plus equity. Financial Leverage 1. To use debt to finance an activity. For example, one usually borrows money in the form of a mortgage to buy a house. One commonly refers to this as leveraging the house. Likewise, one leverages when one uses a margin in order to purchase securities. 2. The amount of debt that has been used to finance activities. A company with much more debt than equity is generally called "highly leveraged." Too much leverage is often thought to be unhealthy, but many firms use leverage in order to expand operations.
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