What Is Leverage in Corporate Finance? Definition & Examples

What Is Leverage in Corporate Finance? Definition & Examples

Leverage dictionary definition

Consumers may eventually find difficulty in securing loans if their consumer leverage gets too high. For example, lenders often set debt-to-income limitations when households apply for mortgage loans. Their variable-cost-reducing investments have dramatically increased their leverage. Online margin trading is usually based on leverage, where the brokerage effectively lets you borrow more money than you have deposited as collateral. And the economic downturn has made raising capital harder than when Bankman-Fried was making the rounds, meaning investors should be able to leverage their power and insist on more corporate controls.

What does word mean Oxford dictionary?

word a single unit of language that means something and can be spoken or written: Do not write more than 200 words.

When one refers to a company, property, or investment as “highly leveraged,” it means that item has more debt than equity. Companies use leverage to finance their assets—instead of issuing stock to raise capital, companies can use debt to invest in business operations in an attempt to increase shareholder value. Furthermore, the EBIT may decrease, thus lowering the earnings per share.


If the United Nations had more troops in the area, it would have greater leverage. Improve your vocabulary with English https://online-accounting.net/ Vocabulary in Use from Cambridge. Using ropes and wooden poles for leverage, they haul sacks of cement up the track.

Leverage dictionary definition

The company will want to know that debt in relation to operating income that is controllable; therefore, it is common to use EBITDA instead of net income. A company that has a high debt-to-EBITDA is carrying a high degree of weight compared to what the company makes. The higher the debt-to-EBITDA, the more leverage a company is carrying. Within an industry, however, if a company is much more leveraged Leverage dictionary definition than its peers, it is likely a riskier investment, as its potential for default is higher. A company that is substantially less leveraged than its peers, on the other hand, could be considered a safer investment within its industry. Leverage is the use of borrowed capital to fund a business’s operations. The formulas above are used by companies who are using leverage for their operations.

Leverage vs. Margin

Power that can be used to influence someone’s actions or decisions. His position affords him the leverage to get things done through committees. The use of a small initial investment to gain a relatively high return.

  • This is not a standardized computation, but it probably corresponds more closely to what most people think of when they hear of a leverage ratio.
  • The ability to earn very high returns when operating at high-capacity utilization of a facility.
  • The public has some leverage with their representatives in the Senate.
  • Work on Basel II began in the early 1990s and it was implemented in stages beginning in 2005.
  • They can leverage a very small investment into millions of dollars.

To address these challenges, companies could turn to emerging technologies that leverage intelligent automation. The disappointing numbers for the US labor movement come at a time of unprecedented worker leverage because of the tight labor market — conditions that tend to favor unions and labor activism. Germany holds a key position in whether large numbers of battle tanks from allies are sent, leverage that appears to have frustrated some of the allies.

Debt-to-Equity Ratio

While Basel I is generally credited with improving bank risk management it suffered from two main defects. Before the 1980s, quantitative limits on bank leverage were rare.

Leave a Reply

Your email address will not be published. Required fields are makes.