reverse leverage

Reverse leverage

Occurs when the interest on borrowings exceeds the return on investment of the funds that were borrowed.

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Reverse Leverage

1. A situation in which a company is spending more money than it is receiving. While this is common in many companies, especially in the first year or two of operation, it is obviously unsustainable in the long-term. A company with reverse leverage often has to resort to loans or equity financing in order to keep its doors open. It is also called negative cash flow.

2. A situation in which the interest a company pays on a loan exceeds the return on any investments acquired with that loan. This usually results in a loss to the company, but some companies may do this deliberately to reduce their tax liabilities. It is also called reverse carry.

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reverse leverage

A situation in which the interest rate on a mortgage is so high that one cannot obtain any financial benefits from a property because of the debt service.